Fair Value of Biological Assets and Stock Price Informativeness: Evidence from IAS 41



Author:Hsu, Audrey Wen-hsin, Sophia Liu, and Mandy Man




We examine the fair value measurement for biological assets on stock price informativeness. International Accounting Standard 41: Agriculture requires fair value measurement and enhances disclosure for biological assets. We investigate whether the adoption of IAS 41 can facilitate firm-specific information for agricultural activities capitalized into stock prices, as measured by idiosyncratic volatility. Using a sample of IAS 41 adopters from countries that mandates IFRS in 2005 and the control samples of non-IAS 41 adopters, we find that stock price informativeness for IAS 41 adopters increases from the pre-adoption period to the post-adoption period. The finding supports the view that a single International Accounting Standard on accounting for all agricultural activities can help reduce stock price synchronicity. Further analysis shows that the effect is not different between firms that transforms bearer plants, which derive value in use of assets and other biological assets. Overall, our results are consistent with the notion that the increased transparency from IAS 41 adoption broadly facilitates firm-specific information flows entering into stock market and thereby reduces synchronicity, making stock price more informative.

Key words: fair value, biological assets, IAS 41, Firm-specific information, Stock price synchronicity