Value-relevance of presenting changes in fair value of investment properties in the income statement: evidence from Hong Kong

This study investigates the value-relevance of the revision introduced in HKAS 40 (2004) 'Investment Property' on the presentation of changes in the fair value of investment properties. The revision follows that introduced in IAS 40 (2000) as Hong Kong adopted the International Financial Reporting Standards in 2005. As introduced in IAS 40 (2000), HKAS 40 (2004) requires that companies choosing to adopt the fair value model have to present changes in the fair value of investment properties in the income statement. Previously under the Hong Kong accounting standard SSAP 13 (2000), such changes were presented primarily in the revaluation reserve. Using both a three-day short window centred around the earnings announcement date and a 12-month long window, this study provides evidence that investors value the HKAS 40 (2004) revision in the presentation of the changes in fair value of investment properties. Based on a sample of listed property companies in Hong Kong during 2004-2006, the results of this study show a significantly higher market price reaction and returns association when changes in fair value of investment properties are presented in the income statement. The results of this study are of interest not only to academic researchers, but to practitioners and standard setters as they assess the decision usefulness of the revised presentation.