Reserach On Motivation And Economic Consequences Of Investment Property’s Fair Value Measurement

The new accounting standards provides two measurement options: historical costmodel and fair value model. In contrast to historical cost, the fair value can show theactual value of the assets, but must be applied in harsh conditions. The activity ofmarket, the operability of fair value assessment and the subjectivity of managementall affect the reliability of fair value. As the basis of evaluation, the market price ofreal estate is influenced by the location factors. Only a handful of companies choosethe fair value measurement in China, which is diametrically opposed to westernsituation. The thesis focuses on:1) the applicability of investment property’s fairvalue2)the reliability of fair value assessment3) the motivation and economicconsequences of fair value option.The thesis firstly reviews the related literature of accounting policy choice,reliability and value-relevance of fair value, the measurement model of investmentproperty and the financial impact of locations. On the basis of theory summary―contract theory‖,‖efficient market hypothesis‖,―decision usefulness theory‖,―economic consequences theory‖and‖knowledge spillover theory‖, the thesis putforward research ideas and hypothesis. Based on the theoretical analysis and empiricalresearch, the thesis takes advantage of the questionnaire, normal distribution test,logistic regression, multiple regression, case study and event study; it builds thereliability model of fair value assessment and defines location indicators. Theempirical results show as follows:1) The efficiency of China’s real estate market ispoor, which leads to the incapability of fair value.2)The fair value assessment isunreliable and overvalued.3) The fair value option for investment properties is morelikely to be chosen by firms that had significant prior earnings management activities.Earnings management firms are more likely to adopt the fair value model when thefirms’ headquarters (or investment properties) are located in less developed regions.Firms choosing the fair value model use unrealized gains and losses associated withinvestment properties to smooth earnings.4) The fair value of investment property islittle value-relevance. The economic consequences of investment property’s fair valueis not significant.On the basis of the above findings, author proposes that: the market regulatorshould build a perfect mechanism, require companies to disclose the fair valueinformation. The market investors should raise the level of interest in fair value adoption. The listed company should avoid using the fair value of investment property,and promote training of accountants.Based on the background of China’s real estate market, from the perspective ofinvestment property, the thesis quantitatively examines the reliability of fair value,which supplements the literature of investment property and reliability of fair valueresearch. It also builds the location indicators; explores the location impacts oninvestment property’s fair value option,which enriches the literature of locations’financial influences. In addition, the thesis analysis the decision usefulness andmarket influences of investment property’s fair value information, which extendsempirical results of economic consequences of investment property’s fair valuemeasurement.