Recognition versus Disclosure of Fair Values

55 Pages Posted: 4 Dec 2013 Last revised: 17 Jan 2015

See all articles by Maximilian A. Müller

Maximilian A. Müller

ESMT Berlin

Eddie Riedl

Boston University - Questrom School of Business

Thorsten Sellhorn

Ludwig-Maximilians-Universitaet (LMU) Munich

Date Written: January 15, 2015


This paper examines pricing differences across recognized and disclosed fair values. We build on prior literature by examining two theoretical causes of such differences: lower reliability of the disclosed information, and/or investors’ higher related information processing costs. We examine European real estate firms reporting under International Financial Reporting Standards (IFRS), which require that fair values for investment properties, our sample firms’ key operating asset, either be recognized on the balance sheet or disclosed in the footnotes. Consistent with prior research, we predict and find a lower association between equity prices and disclosed relative to recognized investment property fair values, reflecting a discount assigned to disclosed fair values. We then predict and find that this discount is mitigated by lower information processing costs (proxied via high analyst following), and some support that it is also mitigated by higher reliability (proxied via use of external appraisals). These latter results are documented using subsample analyses to test one attribute (either information processing costs or reliability) while holding the other constant. Overall, these findings are consistent with fair value reliability and information processing costs providing complementary explanations for observed pricing discounts assessed on disclosed accounting amounts.

Keywords: fair value, recognition, disclosure, IFRS, investment property

JEL Classification: L85, M40, M41

Suggested Citation

Müller, Maximilian A. and Riedl, Edward J. and Sellhorn, Thorsten, Recognition versus Disclosure of Fair Values (January 15, 2015). The Accounting Review, Forthcoming, Boston U. School of Management Research Paper No. 2013-13, Available at SSRN: or

Maximilian A. Müller

ESMT Berlin ( email )

Schlossplatz 1
Berlin, 10178


Edward J. Riedl (Contact Author)

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States
617-353-2317 (Phone)

Thorsten Sellhorn

Ludwig-Maximilians-Universitaet (LMU) Munich ( email )

Ludwigstr. 28 RG IV
Munich, Bavaria 80539
+49(0)89-21806264 (Phone)
+49(0)89-21806327 (Fax)


Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics