Fair Value Measurement Of Investment Property In Listed Companies: Influence Factors And Economic Consequences

With the further development of economic reform, fair value has already been used in specific accounting standards with different degrees in shortly ten years. Fair value measurement affects the quality of accounting information directly and influences decision of the company and the external stakeholders. Whether foreign or domestic, the using of fair value in the theory and practice has always been the focus of debates and hotspots, fair value model of investment property is one of debates.Investment property is one of reclassified asset projects following CAS issued and is different from other assets that measured by fair value. Based on the real estate market, the valuation of fair value in investment property has been received a profound impact. Most companies in Europe and Australia used fair value in investment property, but most of Chinese listed companies which have own investment property have chosen cost model. Therefore, in the application of the fair value of investment property is an interesting topic worth exploring. It helps us to analyze fair value of the performance in emerging markets, verify the role of fair value of the quality of the information in a non-active market conditions, observe the effects in the valuation from assessment agencies and corporate management.At last, it will provide reference evidence for standard setters, regulators and market users of financial reports to.The article studies fair value model of investment property in listed companies from 2007 to 2013, combined with contract theory, efficient market theory, decision-useful concept, signaling theory and the theory of capital structure.It discusses fair value of investment property factors and economic consequences. The economic consequences observed from two aspects, one is from an investor point of view, fair value information is provided incremental information content for the capital market, the second is from the perspective of the creditor, fair value information impact debt financing.Firstly, the article describes the use of fair value of investment property in listed companies from 2007 to 2013. Fair value of the listed companies focused on three sectors of manufacturing, real estate and finance industries. In the information disclosure of fair value model, forty percent adopters which used fair value of investment property acquired mortgage loans, the majority of adopters used the appraiser’s valuation results, but overall the limited disclosure of information.Secondly, based on the data analysis and empirical research, the article study the factors which influence fair value model selected of investment property. The results show that the company’s financial leverage, the greater the long time scale enterprises owned or investment property, the greater the likelihood of listed companies choose the fair value model. And this situation is mainly concentrated in the private listed companies as well as the higher degree of market listed companies in the region. While the degree of profitability and market have chosen and measured at fair value in the statistical sense negative. Traditional management accounting selection opportunism motivation and asymmetric information has not been verified in this article, only debt covenants hypothesis has been significantly supported. The other individual characteristics of the company, such as profitability, company size, the proportion of investment property and property rights nature, as well as external environmental factors significantly affect the fair value model of investment property in the application selection.Thirdly, the article discusses incremental association in fair value of investment property. In general, we find out fair value of investment property would have incremental association compared with historical cost, and changes in the value relevance of earnings. This article also investigates whether they differ if the valuation amount is determined by the firm’s Board of Directors or an independent appraiser. Our results are the same. All evidences indicate that fair value of investment property is significantly associated with price and returns with respect to historical cost, historical cost alone does not show the value relevance, but is associated positively with price and returns as the reference of fair value. Secondly, the changes in fair value are significantly associated with returns. The article finds little difference between the price and returns findings for director- and independent appraiser-based valuations except fair value changes. However, valuations of investment property and its fair value changes recognized in earning, regardless of sign, are negatively associated with price and returns. This negative relation suggests the market discounts discretionary assets and earnings increases, because upward fair value changes are discretionary, even an independent appraiser’s assurance. The results clearly show the market’s attitude towards investment property measured by fair value, and provide direct evidence for the reliability of fair value and investors’ rational judgment.At last, the article analyzes the relationship between fair value of investment property and debt financing. When listed companies adopt fair value of investment property, there is a higher interest rate debt and net debt issuance rate. In addition, the nature of the property and the interaction term is significantly negative, showing an increase in the debt higher proportion of private enterprises; and the stake of the largest shareholder of the interaction term is significantly positive, showing stronger control of major shareholders of listed companies. This article shows that fair value of investment property weakens information asymmetry between companies and lenders, improves companies’ debt structure and helps them to obtain bank loans, especially private enterprises. When the investment property measured by fair value, the value of the collateral are increased, the information asymmetry between listed companies and banks is decreased, assets and accounting profit are increased dramatically. It helped listede companies achieve fiscal targets limited by bank thereby helping to broaden the sources of funding.Above all, despite the superiority of fair value is affirmative by majority of experts, there are some problems in the use of the investment property. So the article gives three policy recommendations from the relevant provisions of accounting standards, real estate market price system and asset quality assessment of market services.