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

329 NTU Management Review Vol. 30 No. 2 Aug. 2020 IASB introduced the fair value model to account for investment properties by issuing IAS 40 investment property , which permits managers to use either the fair value or the historical cost model to report the values of investment properties on balance sheets and incorporate changes in fair values in income statements. This study uses non-financial assets, i.e., investment properties, to directly test the predictive ability of fair value versus historical cost accounting for future performance. Most prior research in this area uses financial assets. Using a sample of real estate firms listed on China’s A-shares market during the period 2007-2014, this study finds that incomes in firms reporting fair values of investment properties provide incremental predictive ability for future income beyond incomes in firms reporting historical cost. In particular, our findings indicate that investment property measured by the fair value model generates a higher predictability for three-years-ahead income than that for two-years-ahead income and one-year-ahead income, since managers may sell the investment properties of firms as the aggregation period lengthens. This study also demonstrates that accumulated changes in fair value gains and losses of investment properties are positively associated with the predictability of current earnings under the fair value model for firms’ future income. The results suggest that the recognition of fair value gains and losses of investment property in income can predict a firm's future performance. This study provides evidence that non- financial assets measured using the fair value model provides incremental predictive ability for future performance beyond historical cost.