Liow, K H (2002) Corporate real estate in financial statements: The accounting perspective. Journal of Financial Management of Property and Construction, 7(2), pp. 91-96. ISSN 1366-4387
Abstract
Many non-real estate companies own significant property assets in absolute dollar value and asset intensity terms. Under the "modified historical cost accounting" system, their properties are included in balance sheets at historical cost or/and revaluation. From an accounting perspective, it is possible that changes in real estate holding values might not be fully and promptly reflected in stock market. As such, the property assets might be undervalued. This study hopes to provide some useful insights into this issue. Specifically, the research investigates the behaviour of the market value of common equity (MV) to the book value of common equity (BV), typically expressed in the forms of market-to-book ratio (MV/BV) or market value added (MVA), in relation to the real estate holdings of non-property companies. The results provide some evidence to suggest changes in real estate values are able to influence valuation of a non-real estate firm from both the book value and market value perspective. Further there is an inverse relationship between real estate value and MV/BV ratio and MVA. Finally market value of common equity leads the book value of common equity by about 1.5 years. Hence there is lack of timeliness of book value based on "modified historical cost accounting" and might have contributed to the belief that corporate real estate assets are undervalued by the stock market.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | corporate real estate, balance sheet, market-to-book ratio, property asset intensity, modified historical cost accounting, Singapore |
| Index terms: | accounting, property company, evidence, corporate real estate, real estate, Singapore |
| Subjects: | real estate economics, Geography, evaluation and assessment methods, strategic management, economic analysis |
| Topics: | Urban Studies, Business Strategy, Research Practice, Geographical Context |
| Descriptive scope: | 3 PCA |
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