Fair Value or Cost Mode Drivers of Choice for Ias 40

European Accounting Review Vol. 19, No. 3, 461– 493, 2010 Fair Value or Cost Model? Drivers of Choice for IAS 40 in the Real Estate Industry A. QUAGLIâˆâ€" and F. AVALLONEâˆâ€"âˆâ€" âˆâ€" Department of Accounting and Business Studies (DITEA), University of Genova, Genova, Italy and âˆâ€" âˆâ€" Department of Computer and Management Science (DISA), University of Trento, Trento, Italy (Received September 2008; accepted February 2010) ABSTRACT The IFRS mandatory adoption in European countries is an excellent context from which to assess the validity of accounting choice theory, which postulates that information asymmetry, contractual efï ¬ ciency (agency costs) and managerial opportunism reasons could drive the choice. With this aim, we test the impact†¦show more content†¦Our ï ¬ ndings suggest that all the rationales described by accounting choice theory (information asymmetry, contractual efï ¬ ciency and managerial opportunism) drive the decision to adopt fair value. Indeed, regarding contractual efï ¬ ciency reasons in particular, we ï ¬ nd that the larger the size (proxy of political costs), the less likely fair value is to be chosen, while leverage and consequent lenders’ protection seems to be insigniï ¬ cant for the choice. Furthermore, our results show that market-to-book ratio (MTBV) (proxy of information asymmetry) is negatively related to the fair value choice. This ï ¬ nding, that conï ¬â€šicts with existing literature, could be accounted for in the real estate industry due to the fact that high levels of MTBV in this context reveal growth opportunities associated with a fair estimation of investment properties and therefore with a low information asymmetry. Managerial opportunism behaviour, measured by a dummy variable for earnings smoothing, seems to have an inï ¬â€šuence on fair value choice. 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