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The Effect of the Fair Value Reporting Model on Analyst Forecast Properties: Evidence from Real Estate
Firms

of our sample period. The results suggest that the adoption of IFRS (which requires that
unrealized holding gains/losses pass through net income) leads to an immediate increase
in the degree of diversified opinions among analysts within UK firms. However, this effect
is not permanent; it only lasts for two years. This aligns with the notion that it takes time

for analysts to adjust to new accounting standards (Clement, 1999; Mikhail et al., 2003;
Markov and Tamayo, 2006).
Finally, we examine the differential effects of the fair value model and the historical

cost model on forecast dispersion by checking the significance of the sum of UK and the
interaction term between UK and the vector of time-period indicators. For example, the
test of UK + UK×YEAR_0506 compares forecast dispersion under the full fair value model
in the UK in 2005-2006 with forecast dispersion under the historical cost model in the US.
Panel B reveals that while both UK + UK×YEAR_1112 and UK + UK×YEAR_1314 are

significant and negative, UK + UK×YEAR_0506, UK + UK×YEAR_0708, and UK +
UK×YEAR_0910 are insignificant, suggesting that UK firms reporting under the full fair
value model have lower levels of forecast dispersion than US firms reporting under the

10
historical cost model after 2011 and 2012. This decrease in dispersion is economically

meaningful. For example, in 2013-2014, UK firms exhibit forecast dispersion lower than
US firms by -0.552 (UK + UK×YEAR_1314), or a level approximately 43% lower than the
11
average of US firms (US mean is 0.966).
Overall, despite the transition from a partial fair value reporting model (i.e.,

unrealized holding gains/losses do not pass through net income) to a full fair value
reporting model (i.e., unrealized holding gains/losses pass through net income) increasing
forecast dispersion among UK firms, we find that this effect is only temporary. More

precisely, forecast dispersion in the post-IFRS period exhibits a downward trend, by which
it is no longer significantly larger than that in the pre-IFRS period. The results showing no
difference between the pre-IFRS period and the later years of the post-IFRS period among
UK firms are consistent with and in support of the notion of FASB that recognition in the
equity section on the balance sheet and recognition in net income are equally useful to

10 Our inference remains unchanged if we use different time windows (i.e., one year) (untabulated).
11 Our inference remains unchanged if we cluster standard errors at the firm and year levels (untabulated).

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