Whether managers bias fair value estimates for investment property to meet/beat analysts’ earnings forecasts?

Abstract

Fair value accounting may induce earnings manipulation in a weak institutional environment. Our article investigates whether managers bias fair value estimates for investment property when meeting/beating analysts’ earnings forecasts. The empirical results indicate that firms reporting investment property at fair value are more likely to meet/beat analyst forecasts in the weak institutional environment of China. Moreover, managers trade off accrual-based earnings management with fair value estimates for investment property when meeting/beating analysts’ earnings forecasts. In addition, further analysis also reveals that managerial incentives to bias fair value estimates are constrained by high-quality audit. The findings shed new light on the unintended consequences on fair value accounting under International Financial Reporting Standards (IFRS) and have important policy implications for regulators and accounting standard setters.

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ORCID for June Cao: orcid.org/0000-0003-2981-4174

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