Asset use and the relevance of fair value measurement: evidence from IAS 41

This study investigates whether asset use influences the relevance of fair value measurement. Specifically, I examine whether fair value is more relevant when it is applied to in-exchange assets than when it is applied to in-use assets. I test the framework on a sample of international firms that adopt International Accounting Standard 41. Using a difference-in-differences approach, I find that earnings information is significantly more relevant when firms measure in-exchange biological assets at fair value, but book value and earnings information is significantly less relevant when firms measure in-use biological assets at fair value. Consistent with these results, in cross-sectional analyses I find that investors discount the fair value of in-use biological assets and their associated unrealized gains and losses relative to the fair value of in-exchange biological assets. At present, the Conceptual Framework provides little guidance on asset measurement, resulting in inconsistencies across measurement standards. Thus, my findings may provide insight to standard setters and those interested in conceptually based asset measurement.