Cross-Country Differences in Disclosure Quality: a Study of Fair Value Disclosures by European Real Estate Companies

Stefan Sundgren (), Juha Mäki and Antonio Somoza-Lopez
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Stefan Sundgren: Umeå School of Business and Economics
Juha Mäki: University of Vaasa
Antonio Somoza-Lopez: Barcelona University

No 1307, Working Papers from Departament Empresa, Universitat Autònoma de Barcelona

Abstract: Companies are under IAS 40 required to report fair values of investment properties on the balance sheet or to disclose them in the notes. The standard requires also that companies have to disclose the methods and significant assumptions applied in determining fair values of investment properties. However, IAS 40 does not include any illustrative examples or other guidance on how to apply the disclosure requirements. We use a sample with publicly traded companies from the real estate sector in the EU. We find that a majority of the companies use income based methods for the measurement of fair values but there are considerable cross-country variations in the level of disclosures about the assumptions used in determining fair values. More specifically, we find that Scandinavian and German origin companies disclose more than French and English origin companies. We also test whether disclosure quality is associated with enforcement quality measured with the “Rule of Law” index according to Kaufmann et al. (2010),and associated with a secrecy-versus transparency-measure based on Gray (1988).We find a positive association between disclosure and earnings quality and a negative association with secrecy.

Pages: 48 pages
Date: 2013-10, Revised 2013-10
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Citations: View citations in EconPapers (1)

Published in Working Papers at the Department of Business, Octuber, pages 1-48

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