臺大管理論叢 NTU Management Review VOL.30 NO.2

319 NTU Management Review Vol. 30 No. 2 Aug. 2020 H2: In firms with investment properties valued using the fair value model, the predictive ability of earnings for future earnings increases with accumulated changes in the fair value of investment properties. 4. Research Design and Sample Collection 4.1 Research Model for Hypothesis We follow prior studies (Altamuro and Beatty, 2010; Bratten et al., 2012) to test the predictability of earnings. Predictability is defined as the coefficient of current period earnings in a regression of future earnings on current earnings. To investigate the effect of the fair value model on the predictability of earnings, we use the following regression model: IN i,t +1 = β 0 + β 1 IN it + β 2 D_FV it + β 3 IN it × D_FV it + δ ' Control it + YearDummy + ε i , t . (1a) IN i,t +2 = β 0 + β 1 IN it + β 2 D_FV it + β 3 IN it × D_FV it + δ ' Control it + YearDummy + ε i , t . (1b) IN i,t +3 = β 0 + β 1 IN it + β 2 D_FV it + β 3 IN it × D_FV it + δ ' Control it + YearDummy + ε i , t . (1c) where the dependent variable is IN , income before taxes, calculated as income before taxes, scaled by beginning total assets; IN is measured one-, two-, and three-years ahead, denoted by t+1, t+2, and t+3, respectively; and D_FV is an indicator variable equal to 1 if the firm measures its investment properties using the fair value model, and 0 otherwise. As predictability is defined as the coefficient on current period earnings in a regression of future earnings on current earnings, our variable of interest would be the interaction term of current earnings and D_FV (i.e., IN it × D_FV it ). This study expects the coefficient on IN*D_FV to be positive (i.e., β 3 > 0) if earnings under the fair value model provide incremental predictive ability of future earnings relative to earnings using the cost model to value their investment properties. We include general control variables 4 which are documented to be related to the predictability of earnings. First, we control for the reported values of the investment properties scaled by beginning of total assets ( IP ). We also include firm size ( SIZE ) to control for the effect of the information environment, firm’s leverage ( LEV) to control for 4 We also interact all control variables with current earnings (IN) in our models. We find that the results are qualitatively similar.