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

Predicting Future Performance Using Fair Value versus Historical Cost: Evidence from Investment Property 328 6.2 Value Relevance Test To obtain additional insights from our main results, we employ the Ohlson (1995) model to test whether the fair value of investment property provides incremental explanatory power over the cost model. This model is similar to the model used by He, Wong, and Young (2012). 5 The model tests the value-relevance of gains and losses from changes in the fair value of investment property and the fair value of investment property. P it = β 0 + β 1 NI it + β 2 BV it + β 3 D_FV it + β 4 NI it × D_FV it + β 5 BV it × D_FV it + β 6 SIZE it + YearDummy + ε i , t . (4) where P it is the share price as of four months after the fiscal year-end in year t for firm i, NI it represents earnings per share, BV it is net assets per share all of the variables are on a per-share basis, and SIZE it is measured as the log of the total assets of firm i . We expect the coefficient of D_FV it in equation (4) to be positive and significant if investors consider income and book value under the fair value model to be value-relevant. Untabulated results show that the coefficients on NI it × D_FV it and BV it × D_FV are both positive and significant at the 1% level. This indicates that accounting information in firms adopting the fair value of investment property provides more incremental informational content than earnings in firms adopting the cost model. 7. Conclusion This study examines whether using the fair value model to report financial performance provides incremental predictive ability for future performance beyond historical cost. More specifically, we test whether or not reporting fair values of investment properties on balance sheets using fair market value has any incremental predictive value for future earnings over the historical cost model. We also test if reporting the changes in market values of investment properties in income statements has any incremental predictive value for future earnings over the historical cost model. 5 Our specification differs from He, Wong, and Young (2012), in that we divide the book value of equity into two components: the value investment property under the cost model and the fair value model, and the book values of equity excluding the value of investment property.