The Impact of Firm-Supplied versus User-Supplied Fair Values on Analyst Outputs



This paper examines how the source of fair value estimates affects user valuation outputs. Following accounting-based valuation theory, we examine two analyst forecast outputs: a balance sheet construct (net asset value, or NAV, which requires fair values of assets as a primary input) and an income statement construct (earnings-per-share, or EPS). Our sample includes publicly-traded UK and US real estate firms, for which real estate is the primary operating asset. The UK captures firm-supplied fair values, with firms repo rting property fair values as mandated under both UK and international reporting standards. In contrast, the US captures user-supplied fair values, with firms reporting properties at depreciated historical cost as mandated under US standards, and also not voluntarily disclosing property fair values. We predict and find that relative to US firms, analysts of UK firms have more accurate and less dispersed NAV forecasts, consistent with firm-supplied fair values revealing private information that is incorporated into users’ valuation estimates in a balance sheet construct. However, we further find that analysts of US firms have more accurate EPS forecasts, consistent with historical cost reporting models leading to either more predictable earnings streams and/or greater analyst effort on income statement constructs.
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Felix Lamp (
Stephan Kramer (