The Effect of Fair Value Accounting on Jordanian Investment Properties

Abstract

The financial reporting in Jordan has witnessed significant improvements in the past twenty years; these improvements were a result from the adoption of the International Financial Reporting Standards (IFRS). The main objective of this study was to examine whether developments in financial reporting environment following the adoption of IFRS resulted in more relevant financial information over time. This study uses a quantitative methodology in addressing the research questions. The relevance of fair value has been tested by studying the effect of fair value measurement applications for investment properties on the financial performance of Jordanian firms, its share prices and market values, the study also examined the effect of unrealized gains and losses on financial statements. Ohlson (1995) theoretical frameworks have been used to examine this relationship. A sample of Jordanian firms (consisting of 41 real estate companies) listed in the Amman stock exchange during the 2008–2011 time period has been used. Our study findings, based on the results of multiple regression analysis showed that financial performance of Jordanian real estate companies is significantly positively related to investment properties valued at fair values. Furthermore, the book value incremental information content is greater than information content of the net income and the unrealized gain & losses inclusion in owners' equity increases the explanatory power of the firm's market value model of real estate companies. This study concludes that fair value accounting measurements for Jordanian real estate companies have been value relevant during all the period of the study.