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NTU Management Review Vol. 35 No. 2 Oct. 2025

model provides more useful information and yields a higher predictive ability for future
earnings than under the cost model.

2.3 Hypothesis Development
In this subsection, we predict the effects of the full fair value model and the partial

fair value model on forecast dispersion. Following the UK’s 2005 adoption of IFRS—and,
in turn, the full fair value model—UK firms not only report their investment properties
at fair value on the balance sheet but also include unrealized holding gains/losses on

the income statement. On the one hand, it is possible that forecast dispersion may not
change among UK firms across these two reporting regimes, as the changes in fair value
estimates (despite not passing through net income) had been disclosed in the financial
statements prior to IFRS adoption; if all analysts had fully used the disclosed information
to predict earnings under the UK domestic standards and immediately adjusted to the new

reporting regime, IFRS would not provide them with new information or, in turn, lead

5,6
to changes in forecast dispersion (Kothari, 2001). On the other hand, it is possible that
task of prediction is more complex and difficult for analysts in the post-IFRS period, as
earnings reported under the full fair value model are exposed to temporal market changes
and feature a higher number of less-correlated items (relative to those reported under the
partial fair value model and the historical cost model). To the extent that not all analysts
fully adjust to new accounting standards, analysts’ opinions regarding future prospects are
likely to be divergent following IFRS adoption.

It is also worth noting the possibility of a time-varying effect following the 2005 shift
in standards. Prior research (e.g., Clement, 1999; Markov and Tamayo, 2006; Mikhail,
Walther, and Willis, 2003) suggests that analysts learn through experience, meaning

5 This argument is based on the semi-strong form of the efficient market hypothesis, suggesting that
recognition versus disclosure of accounting information should not make a difference to financial
statement users. Prior research (e.g., Barth, 1991; Gopalakrishnan, 1994) finds that investors treat
disclosed and recognized information in a similar manner. The research question we examine is close
to but different from the issue of recognition versus disclosure because the unrealized holding gains/
losses are recognized in the equity section in the balance sheet under UK domestic standards.
6 Related to our research question, FASB also states that recognition and disclosure may have “equal
usefulness” for sophisticated users (SFAS No. 87, para.116).

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