Working Paper Series No.

2018-1

Fair Value of Biological Assets and

Stock Price Informativeness : Evidence
from IAS 41

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

Chung-Hua Institution for Economic Research

75 Chang-Hsing Street, Taipei, Taiwan, Republic of China
 Fair Value of Biological Assets and Stock Price Informativeness

Audrey Wen-hsin Hsu

[email protected]
National Taiwan University

Sophia Liu
[email protected]
National Taiwan University

Mandy Man
[email protected]
National Taiwan University

Acknowledgements: We thank the research grant from Chung-Hua Institution

Economic Research.
 Fair Value of Biological Assets and Stock Price Informativeness: Evidence from

IAS 41

Abstract

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

2
3
1. Introduction

This study investigates whether and how a firm’s adoption of International Accounting

Standard 41: Agriculture (IAS 41) influences firm-specific information flow into the

market. We use the firm’s stock price informativeness as a measure of the information

environment for the firm. IAS 41 was issued by International Accounting Standard

Committee (IASC) in 2001 and became effective for annual reporting periods beginning

on January 1, 2003, or upon adoption of IFRS. IAS 41 prescribes the accounting treatment

for biological assets (a living animal or plant) and for the initial measurement of

agricultural produce harvested from an entity’s biological assets at the point of harvest1.

IAS 41 requires an entity to use a fair value approach in measuring its biological assets

related to agricultural activity2 . Prior to the development of IAS 41, assets related to

agricultural activity and changes in those assets were excluded from the scope of

International Accounting Standards (IASB, 2001). Accounting guidelines for agricultural

activity rely on national standard setters, which rely more on transaction-based historical

accounting.

We expect that the adoption of IAS 41 can facilitate firm-specific information and

make stock price more informative. One main reason is that the effects of changes brought

about by biological transformation (growth, degeneration, production and procreation)

are best reflected by reference to the fair value changes in biological assets, which have

a direct relationship to changes in expectations of future economic benefits to the firm

(IASB, 2001). For example, patterns of growth in a bearer animals (e.g., horses, cattle,

etc.,) directly affect future economic benefits. Under transaction-based historical cost

1
IAS 41 does not deal with the processing of agricultural produce after harvest, which is accounted for
under IAS 2 Inventories. For example, the wine production from grapes and cheese production from milk
are accounted for under IAS2.
2
In cases when the reliability of fair value measurement is a concern, IAS41 requires the biological
assets be measured at its cost less any accumulated depreciation and any accumulated impairment losses.
4
accounting, no income might be reported until the animals are sold whereas under fair

value model income is measured and reported throughout the period as biological

transformation happens (i.e., the biological assets become mature). Moreover, before IAS

41, the home-grown animals have different cost recognition from the purchased animals

under historical cost model. The fair value model under IAS 41 would allow similar assets

to be measured using the same basis Fair value information facilitates dissemination of

more reliable firm-specific information to the market and thus motivates outside investors

to rely more (less) on firm-specific (common) information when making their trading

decisions. To the extent that similar assets should have similar expectation for future

benefits, the adoption of IAS 41 can enhance comparability and understandability for

market participants. As a result, the amount of firm-specific information incorporated into

stock prices increases, or, equivalently, stock price synchronicity (informativeness)

decreases (increases).

In addition, the enhanced disclosure of biological asset description and fair value

reconciliation required by IAS 41 helps investors understand the nature of agricultural

activity the firm engaged in and the economic outcomes associated with biological

transformation. Investors can obtain an understanding about the biological assets

transformed by the firm from the disclosure. To the extent that enhanced disclosures via

IAS 41 adoption facilitate the flow of higher-quality firm-specific information into the

market at no additional (or cheaper) cost, investors are likely to rely more on firm-specific

information than on common information. Additionally, such enhanced disclosure also

improves firm level transparency. Based on Hutton et al. (2009), the increased

transparency will reduce stock price synchronicity, leading to a more informative stock

price.

We test the effects of IAS 41 adoption on stock price informativeness using a sample
5
of IAS 41 adopters comprising 712 firm-year observations from 18 IFRS adopting

countries and Non-IAS 41 adopters comprising 4,316 firm-year observations from 15

Local GAAP adopting countries. We use firms with agriculture activities in the world

during 2000-2009. Firms with agriculture activities exhibit substantial variation in the

reporting of biological assets. The within-industry design holds constant other factors that

could drive stock price informativeness across industries, which can help us isolate the

effect of fair value accounting. We employ a difference-in-differences research design

that compares the change in stock price synchronicity for IAS 41 adopters with changes

for non-IAS 41 adopters over the pre-IAS 41 period (2000 to 2004) and the post-IAS 41

period (2005 to 2009). Following prior studies (e.g., Jin and Myers, 2006; Fernandes and

Ferreira, 2008; Dang et al., 2015), we use R2 statistic derived from the market model to

calculate stock price synchronicity. Prior studies show that the enhanced flow of firm-

specific information into the market increases firm-specific return variation, which in turn

lowers stock price synchronicity (Piotroski & Roulstone, 2004).A higher (lower) extent

of stock price synchronicity indicates a lower (higher) extent to which firm-specific

information is incorporated into stock price and a less (more) informative stock price.

Results reveal that, controlling for other determinants, stock price synchronicity is

significantly lower for IAS 41 adopters following IAS 41 adoption relative to Non-IAS

41 adopters. Firms previously reporting agriculture activities at transaction-based

historical cost exhibit greater stock price informativeness after they switch to report

biological assets at fair value. The results supports the hypothesis that stock price

becomes more informative for firms engaging in agricultural activities.

In additional analysis, we also compare our results between the bearer plants and other

biological assets (including bear animals, consumable biological assets and produce).

However, our results do not show that the economic consequences for the two types of
6
biological assets are different. Our results raise a concern on the IASB recent revision to

move bearer plants out of the scope of IAS 41. A bearer plant is a living plant that is

expected to bear produce for more than one period and has a remote likelihood of being

sold3. This amendment became effective for annual reporting period after January 1, 2016.

From then on, bearer plants are accounted for at historical cost and disclosure should be

presented in line with property, plant and equipment.

This study contributes to the literature in several ways. First, agriculture is important

in the economy of many countries, but has traditionally not received much attention from

accounting researchers, practitioners and standard setters. Our study is one of the first to

provide evidence that IAS 41 can facilitate firm-specific information for firms with

agriculture activities. 4 Second, we contribute to the debate over fair value for non-

financial assets. Prior studies document the benefits of fair value accounting for non-

financial assets in terms of value relevance (e.g, Easton et al., 1993; Barth and Clinch

1996, 1998; Aboody et al., 1999) and reduced information asymmetry (Muller et al.,

2011); however these studies are based on voluntary setting, and it is difficult to isolate

the standard effects from management incentives. We provide evidence that fair value

measurement of biological assets improves financial reporting transparency than

3
Specifically, a bearer plant is a living plant that: (1) is used in the production or supply of agricultural
produce; (2) is expected to bear produce for more than one period; and (3) has a remote likelihood of
being sold as agricultural produce, except for incidental scrap sales (IASB, 2014).
4
There are some studies that explore the economic consequences of biological assets. For example, using
a sample of 389 firm-year observations of listed companies in IFRS adopting countries, Gonçalves and
Lopes (2015) examine the value-relevance of fair value accounting for biological assets. Their results show
that biological asset are positively associated with market values. Similarly, Huffman (2016) find that the
fair value of biological assets and the associated unrealized gains and losses are more associated with
market value for consumable biological assets than for bearer biological assets. However, both studies do
not compare the effect between the pre-adoption and post-adoption period. It is difficult to know whether
adopting IAS 41 can improve stock informativeenss. Daly and Skaife (2016) find that the cost of debt is
higher for firms using the fair value method of accounting for their biological assets relative to firms using
historical cost. However, their study compare fair value accounting and historical cost from different
national standards, and does not focus on IAS 41.

7
historical cost of biological assets. Finally, our study also adds to the literature on stock

price synchronicity (or stock price informativeness) by documenting that IAS 41 is

helpful in conveying firm-specific information to investors for agricultural activities.

The remainder of this paper is organized as follows. Section 2 provides background

information and literature review. In Section 3, we briefly review the literature on

biological assets, fair value accounting and stock price synchronicity. Section 3 develops

hypotheses and Section 4 presents the research design, sample selection as well as the

descriptive statistics. Section 5 and 6 present empirical results of this study and additional

tests, respectively. Section 7 concludes the paper.

8
2. Accounting Standard and Literature Review

2.1 Measurement for agriculture activities under IAS 41

IAS 41 was issued in 2001 and became effective for annual reporting periods

beginning on January 1, 2003, or alternatively, upon adoption of IFRS. Prior to the

development of IAS 41, assets related to agricultural activity and changes in those assets

were excluded from the scope of International Accounting Standards. Accounting

guidelines developed by national standard setters were applied to account for agricultural

activities and the related biological assets (IASB, 2001). For example, the American

Institute of Certi. ed Public Accountants (AICPA, 1996) 5 , the Canadian Institute of

Chartered Accountants (CICA, 1986) or the French ‘Plan Comptable Ge´ne´ral Agricole”

(PCGA) from 1986 recommended the historical cost principle as the main reference for

asset valuation for agricultural activates. However, the guidance from different national

setters have been piecemeal, and have created conflicts when apply to the critical events

associated with biological transformation (growth, degeneration, production and

procreation) that change the substance of biological assets (IASB, 2001).

IAS 41 prescribes accounting treatment for firms engaging in agricultural activities.

Agricultural activity is the management by an entity of the biological transformation for

living animals and plants (i.e., biological assets)6 and harvest of biological assets for sale

or for conversion into agricultural produce (i.e., agricultural produce)” (IASB, 2001). IAS

41 requires firms to account for their biological asset and agricultural produce using fair

value on initial recognition and at the end of each reporting date7. Any gains or losses

5Currently, in the USA, Accounting Standard Codification 905 requires that biological assets of all
entities in the agricultural industry be classified as inventory or fixed assets, depending on their nature
and intended use.
6
Biological transformation comprises the process of growth, degeneration, production and procreation
that cause qualitative or quantitative changes in a biological asset (IASB, 2001).
7
There are two occasions where cost model is permitted by IAS 41, inability to measure fair value
reliably [41.30] and the early stage of biological assets’ life [41.24]. Under the two situation, IAS 41
9
arising from changes in fair value is recognized as a part of profit and loss of the current

period. Fair value can depict future economic benefits better than historical cost for

biological assets because biological transformation (i.e., growth, degeneration,

production and procreation) determines the quantity of agriculture activates more than

buying and selling transactions (IASB, 2001).

Figure 1 Panel A provides the scope for IAS 41. Biological assets can also be

classified into consumable biological assets, and bearer biological assets, with the former

that will be harvested, and the latter not the primary agricultural produce. Figure 1 Panel

B and Panel C of Figure 1 present an example of balance sheet and income statement

presentation under IAS 41. Such presentation is not available prior to IAS 41.

2.2 Disclosure for agriculture activities under IAS 41

In addition to presentation on the financial statement, IAS 41 requires firms to

provide separate disclosure for biological assets in the footnote. Such disclosure includes

(1) a description of biological assets the firm transforms and of the nature of activities

involving the biological assets; (2) a reconciliation of changes in the carrying amount of

biological assets for the current period and (3) the method and relevant assumptions used

to determine fair value of biological assets. Moreover, IAS 41 encourages firms to

distinguish their biological assets between consumable and bearer or immature and

mature [41.43] (IASB, 2001).

Figure 2 Panel A presents the description of biological asset; Panel B presents the

reconciliation table (including factors related to physical change or price change); Panel

permits that biological assets are measured at cost less any accumulated depreciation and any
accumulated impairment losses. Besides, IAS 41 allows that cost may approximate fair value where little
biological transformation has taken place since the initial cost was incurred (IASB, 2001). For example,
fruit tree seedlings planted immediately before the balance sheet date may undergo little biological
transformation. Therefore, cost for the plant may approximate fair value at the balance sheet date. The
same applies when the impact of the biological transformation on price is not expected to be material.
10
C presents the assumption used in determining fair value. These disclosures are not

available in the pre-IAS 41 period.

2.3 Related literature

2.3.1 fair value accounting of non-financial assets

The current debate for fair value primarily focused financial assets8, with non-financial

assets receiving little attention (e.g., Barth M. E., 1994; Carroll et al. 2003). Those

findings indicate that fair value estimates provide significant explanatory power beyond

historical cost. However, the literature on financial assets may not generalize to long-

lived operating assets.

We extend the literature on the fair value estimates for nonfinancial assets. Many of

prior studies have documented substantial economic benefits when nonfinancial assets

are measured with fair values. One stream of studies use the settings where firms were

required to use historical cost for measuring non-financial assets, but firms could ex post

revalue non-financial assets. For example, Aboody et al. (1999), under U.K GAAP,

explore and find a positive association between the level of the revaluation reserves for

property, plant and equipment and stock prices. Other studies also find that the revaluation

for fixed assets under Australian accounting standards are informative about future

performance and the equity market (e.g, Barth and Clinch, 1996; 1998).

Recently, IASB has introduced fair value accounting in many non-financial assets,

including property, plant and equipment (IAS 16), intangibles (IAS 38), and investment

8
The financial crisis of 2008 has further pulled fair value accounting into spotlights (De George et al.,
2016). Proponents argue that fair value reflects current market conditions and provide timely information
(Laux & Leuz, 2009). Besides, they argue that fair value has greater relevance, more accurately reflect
real volatility and simplify financial reporting (Song et al., 2010). On the contrary, opponents claim that
fair value is not relevant and misleading for assets that are held for a long period, especially for assets
held to maturity. They also argue that fair values are not reliable (Laux & Leuz, 2009). They further point
out that fair values are less verifiable, subject to greater estimation error, and prone to greater managerial
manipulation (Song et al., 2010).
11
properties (IAS 40). However, unlike biological assets that IFRS mandates fair value

measurement, IFRS provides a free choice between fair value and historical cost

accounting for plant assets, intangible assets and investment property. For example, IAS

40 allows firms a choice for recognizing investment properties on the balance sheet at fair

value; IAS 40 also allows firms a choice to recognize investment properties on the balance

sheet at depreciated cost subject to impairment, with mandatory footnote disclosure of

fair values. Muller et al. (2011) also find that information asymmetry was reduced by

mandatory adoption of fair value disclosure or recognition for investment property under

IAS 40. Muller, Riedl and Selhorn (2015) find that choosing fair value model is more

associated with equity prices than choosing cost models.

Prior studies examining the benefits of fair value for non-financial assets are subject

to one important caveats. As their settings are based on voluntary settings, it is difficult

to know whether the benefits documented around voluntary choice for fair value

accounting is attributed to the fair value feature of accounting standards or firms’

contracting incentives to adopt fair value accounting. Under the voluntary settings,

manage may only revalue assets when fair value accounting is beneficial to them.

Whittred and Chan (1992) argue that asset revaluations reduce underinvestment problems

that arise form contractual restrictions, while Cotter and Zimmer (1995) argue that

upward revaluation increase borrowing capacity. Recently, Christensen and Nikolaev

(2013) also find that fair value accounting on a voluntary basis for IFRS is unlikely to

become the primary valuation method for non-financial assets on a voluntary basis. Thus,

our study, using the mandatory setting for fair value model in biological assets, can

provide evidence whether mandated fair value measurement can help improve economic

consequences.

12
2.3.2 Financial reporting, disclosure, and stock price synchronicity

In addition, our study contributes to the literature examining whether the

transparency of financial reporting increases stock price informativenss. Observed stock

prices reflect both common information and firm-specific information. Prior studies show

that the enhanced flow of firm-specific information into the market increases firm-

specific return variation, which in turn lowers stock price synchronicity (Piotroski &

Roulstone, 2004). We therefore use stock price synchronicity to capture the extent of firm-

specific information flow to the market as reflected in stock prices, or equivalently, stock

price informativeness. In empirical studies, stock price synchronicity is often measured

by the R-squared statistics derived from the market model.9

Hutton et al. (2009) investigate the relation between the transparency of financial

statements and distribution of stock returns and find that the more opaque the financial

report, the higher the extent of stock price co-movement. Haggard et al. (2008) document

that enhanced voluntary disclosure would affect the amount of firm-specific information

incorporated into stock prices. Using firm-level data from 34 countries, Kim and Shi

(2012) provide evidence that firm’s voluntary adoption of IFRSs has an impact on the

extent to which firm-specific information is capitalized into stock prices, suggesting that

voluntary IFRS adoption facilitates the flow of firm-specific information into the market

and thereby reduces the synchronicity. However, the voluntary IFRS adoption setting is

subject to self-selection bias, which could potentially overestimate the positive impact of

adopting IFRS. Those voluntary IFRS adopters have discretion to choose the best

9
In cross-country analyses, Morck et al. (2000) find that stock prices in economies with lower per capita
gross domestic product (GDP) tend to move together, which is not the case for economies with higher
GDP. Their interpretation is that this phenomenon is driven by poor protection of property rights that
discourage informed arbitrage. Jin and Myers (2006) further explain that in addition to imperfect
protection of investors’ property rights, opacity is another factor causing higher R-squared. These two
factors are probably mutually reinforced in practice.
13
disclosure rules that increase price informativeness. In particular, Kim and Shi (2012)

does not test whether the increased price informativeness is due to the choice of fair value

model or cost model for non-financial assets. We extend these studies by examining one

of the controversial change in non-financial assets under mandatory IFRS adoption--the

mandated fair value recognition for biological assets.

3. Hypotheses Development

Stock price reflects both common and firm-specific information. We expect adoption

of IAS 41 to facilitate firm-specific information and make stock price more informative

based on the following reasons. First, IAS 41 switches the measurement of biological

assets from the historical cost convention to fair value. Fair value is considered to best

reflect the economic benefit accompanied by biological transformation (IASB, 2001). To

illustrate, if fair value measurement is adopted, the amount presented on the financial

statement would change as biological transformation happens (i.e., the biological assets

become mature). Information about the economic benefit associated with biological

transformation is useful for investors in appraising current period performance and future

prospects (IASB, 2001). In this context, fair value information facilitates dissemination

of more reliable, firm-specific information to the market and thus motivates outside

investors to rely more (less) on firm-specific (common) information when making their

trading decisions (Kim & Shi, 2012). As a result, the amount of firm-specific information

incorporated into stock prices increases, or, equivalently, stock price synchronicity

(informativeness) decreases (increases).

Second, the enhanced disclosure of biological asset description and fair value

reconciliation required by IAS 41 helps investors understand the nature of agricultural

activity the firm engaged in and the economic outcomes associated with biological
14
transformation. Investors can obtain an understanding about the biological assets

transformed by the firm from the disclosure. As Kim and Shi (2012) suggest, to the extent

that enhanced disclosures via IAS 41 adoption facilitate the flow of higher-quality firm-

specific information into the market at no additional (or cheaper) cost, investors are likely

to rely more on firm-specific information than on common information. Additionally,

such enhanced disclosure also improves firm level transparency. As Hutton et al. (2009)

suggest, the increased transparency will reduces stock price synchronicity, leading to a

more informative stock price.

Third, IAS 41 also requires firms to disclose the method and assumptions used in

determining fair value of biological assets. Ryan (2008) believes that fair value

measurement supported by disclosures of critical inputs and sensitivity of the

measurement to the inputs is considerably more informative to users of financial

statements. Investors are then more likely to collect, process and trade on firm-specific

information. IAS 41 adoption can thus improve a firm’s information environment by

facilitating the flow of firm-specific information into the market. In such a case, IAS 41

adoption causes stock prices to co-move more (less) closely with firm-specific (common)

information, thereby decreasing stock price synchronicity (increasing stock price

informativeness). Based on these discussions, we form our first hypothesis in alternative

form as follows:

H1: Stock price is more informative for firms engaging in agricultural activities after

adoption of IAS 41, ceteris paribus10

10
Kim and Shi (2012) indicate that it is also possible that the increase in quality of public information
associated with IAS 41 adoption may lower the profitability of acquiring firm-specific information and
thus discourage informed traders from collecting and trading on private information. In such a case, stock
prices become more synchronous with common information.
15
4. Research Design and Sample Selection

4.1 Measuring stock price synchronicity

Our dependent variable is stock price synchronicity for each firm-year, which

captures the extent to which firm-specific information flows into stock prices. This also

captures stock price informativeness. Lower stock price synchronicity indicates more

informative stock price. Following prior studies (e.g., Morck et al., 2000; Jin and Myers,

2006; Chan and Hameed, 2006;Kim et al., 2014; Dang et al., 2015; Eun et al., 2015), we

measure stock price synchronicity using the R2 statistics of the market model. Specifically,

for each sample year in each country, we regress firm j’s weekly returns (rj) on the current

and prior week’s value-weighted market return (rm) and the current and prior week’s U.S.

market index return adjusted by exchange rate (rUS + EX):

ri, j , w = ai + 1,i rm, j,w +  2 ,i (rUS,w  EX j,w ) + 3,i rm, j,w1 +  4,i (rUS,w1  EX j,w1 )
+ 5,i rm, j,w2 + 6,i (rUS,w2  EX j,w2 ) + 7,i rm, j,w1 + 8,i (rUS,w1  EX j,w1 )
+ 9,i rm, j,w 2 + 10,i (rUS,w 2  EX j,w 2 ) +  i,w (1)

where ri,j,w is the current weekly return for firm i of country j in week w, constructed from

daily return drawn from Datastream; rm,j,w is the market index returns or the MSCI index

return of the stock market where firm i is traded. rUS,w is the U.S. market index return

(CRSP value-weighted market return) as a proxy for the global market; EX j,w is the

change in country j’s exchange rate to the U.S. dollars. rUS,w  EX j,w denotes the US

market index return being adjusted for change in the exchange rate of country j against

the US dollar.

Using weekly returns instead of daily returns helps avoid illiquidity of some

securities with low trading volume, which introduces measurement errors for daily returns.

We include a U.S. market index return to proxy for global market returns since most
16
countries are exposed to foreign capital and foreign trades. In addition, the inclusion of

lead and lag terms in Eq. (1) for firm return, the country market index return, and U.S.

market index returns is to correct for nonsynchronous trading (Dimson. 1979; Kim et al.

2011). By including lead and lagged return metrics, we also correct for potential

autocorrelation problems. In addition, we require that a minimum of 40 weekly return

observations be available for each firm in each year. Synchronicity for firm j from each

country in each sample year (SYNCH) is defined as

R 2j
SYNCH j,t  log( )
1  R 2j (2)

Following Kim and Shi (2012), we use the log transformation of R2 to create a

continuous variable from a variable that is bounded by zero and one, thus making the

dependent variable more normally distributed. High values of SYNCH indicate that

individual firms’ stock returns co-move closely with the market and/or industry returns,

and thus the firm-specific return variation is low. For the purpose of our study, an inverse

relation between IAS 41 adoption and the synchronicity measure can be viewed as an

indication that IAS 41 adoption facilitates the flow of firm-specific information into the

market and improves stock price informativeness.

4.2 Research model

4.2.1 Model for the effect of IAS 41 adoption (H1)

We explore the overall effect of IAS 41 adoption on stock price synchronicity using

a difference-in-differences design. Specifically, we regress the firm-specific stock price

synchronicity (SYNCH) on an indicator variable for the type of adopter (IAS 41 adopters

versus Non-IAS 41 adopters), an indicator variable for the time period (pre- versus post-

17
IAS 41 adoption period), the interaction between these two indicators, and a set of control

variables. The research model is as follows:

SYNCH i , j ,t  0  1 POSTi , j ,t   2 IAS41i, j ,t  3 POSTi, j ,t  IAS41i, j ,t   4 Sizei, j ,t  5 Leveragei, j ,t (3)

 6 StdROAi , j ,t  7 Sigmai , j ,t  8VOLi , j ,t  9 Accri , j ,t  10 Freqi , j ,t  11GDPj ,t
 12 Nlist j ,t  YearDummies  CountryDummies   i , j.t

Where SYNCHi,j,t , as previously defined, is the measure for stock price synchronicity of

firm i form country j in year t. POST is an indicator variable which takes the value of one

if a firm-year falls in or after 2005 and zero otherwise; that is the time period after

adoption of IAS 41 (i.e., fair value measurement and separate disclosure is required for

biological assets). We focus on the five years before and after the IAS 41 adoption, so

that for a December year-end company, the pre-adoption period ranges from 2000 to 2004,

while the post-adoption period ranges from 2005 to 2009. IAS41 is an indicator variable

which equals one for firms adopting IAS 41 in 2005 and zero otherwise. We use the IAS

41 related accounting items on balance sheet and income statement to identify IAS 41

adopters, which is discussed in section 5.3. The variable of interest is the coefficient on

the interaction term, β3, which captures the incremental change in stock price

synchronicity for firms that adopt IAS 41 in 2005 relative to that for firms in the control

group. A negative (positive) coefficient on β3 is consistent with a decrease (increase) in

stock price synchronicity. If IAS 41 does facilitate the flow of firm-specific information

into market, β3 is expected to be significantly negative.

We incorporate a set of firm-level control variables that are known from prior studies

to influence the flow of firm-specific information in the market. We include firm size

(Size) as measured by the natural logarithm of the total market value at the end of the year

18
because Piotroski and Roulstone (2004) suggest a significant positive relation between

synchronicity and the market cap of the firm. We include Leverage to control for firms’

debt financing decision because prior literature have shown that financial leverage is

important in explaining cross-sectional variation in stock return volatility (Boubaker et

al., 2014). Additionally, StdROA (standard deviation of ROA computed over the

preceding 5 years) is added to control for earnings volatility because Piotroski and

Roulstone (2004) show a negative correlation between synchronicity and earnings

volatility. Sigma is added to control for return volatility of an individual firm because

Chan and Hameed (2006) show that firms with more volatile returns produce more firm-

specific information and are hence less impacted by market-wide information. We also

include VOL to control for trading volume turnover because Gul et al. (2010) find a

significant negative relationship between synchronicity and the trading volume of a firm’s

stock. Hutton et al. (2009) show that stock price synchronicity is positively related to

financial reporting opacity associated with earnings management. Therefore, we add Accr

to control for the potential effect of earnings management. Following Kim and Shi (2012),

we also control for firms’ reporting frequency (Freq) as they argue that more frequent

financial reporting may facilitate firm-specific information flows into the market. We also

control for year and country fixed effects.

Finally, prior studies have shown that synchronicity would be different in countries

with different levels of economic and capital market developments (Jin & Myers, 2006;

Morck et al., 2000). As a result, we also include gross domestic product per capita (GDP)

and number of domestic listed company (Nlist) as country-level controls. To control for

the potential effect of outliers, we winsorize the data at the top and bottom 1 percent.

Definitions of all variables are provided in Appendix A.

19
4.2.2 Model for the difference across biological asset class (H2)

To test the difference in the effect of IAS 41 adoption on stock price synchronicity

between bearer plants and other biological asset (i.e., consumable biological assets and

bearer animals), we regress the firm-specific stock price synchronicity (SYNCH) on an

indicator variable for the type of biological assets (bearer plants versus other biological

assets), an indicator variable for the time period (pre- versus post-IAS 41 adoption period)

and the interaction between these two indicators. The research model is as follows:

SYNCH i , j ,t  0  1POSTi , j ,t  2 BearerPlanti. j ,t  3 POSTi, j ,t  BearerPlanti, j ,t  4 Sizei, j ,t

 5 Leveragei , j ,t  6 StdROAi , j ,t  7 Sigmai, j ,t  8VOLi, j ,t  9 Accri, j ,t  10 Freqi, j ,t
 11GDPj ,t  12 Nlist j ,t  YearDummies  CountryDummies  i , j.t
(4)

Where BearerPlant is an indicator variable that takes value of one for firms transforming

bearer plants and zero otherwise. The variable of interest is the interaction term, the

coefficient on which (β3) captures the difference in change in stock price synchronicity

between firms transforming bearer plants and firms transforming other biological assets.

We do not predict the sign for the interaction term (β3). A positive sign indicates a reduced

informativeness effect for bearer plants transforming firms following IAS 41 adoption. A

negative sign, on the contrary, indicates a strengthened effect. The definition of remaining

variables is the same as equation (3).

4.3 Sample selection

Our focus is on the impact of IAS 41 adoption on stock price informativeness,

measured as stock price synchronicity. Following DeFond et al. (2015), we start our

sample of IAS 41 adopters from publicly traded firms in 27 countries that mandate IFRS

adoption in 2005. Similar to Gonçalves and Lopes (2015), for each mandatory IFRS

20
adoption countries, we search for firms that are influenced by IAS 41 using five balance

sheet and income statement items in Worldscope over the period 2005-2015. They are

Biological Asset NBV (WC18277), Biological Asset Gross (WC18278), Biological

Assets Current (WC18258), Biological Assets Accumulated Depreciation (WC18279),

and Unrealized Valuation Gains/Losses Biological Assets (WC18573). Non-zero value of

these items indicates that following IAS 41, a firm reports biological assets and related

items in its financial reports11. We identify 405 firms through this process. Subsequently,

we hand-collect the annual report of these firms and eliminate 132 firms whose annual

reports are not available. We then check the annual report of the remaining sample firms

to gather the following information: (1) The biological assets transformed by the

underlying firm (i.e., whether the biological assets should be classified as consumable,

bearer animals or bearer plants); (2) Whether the biological assets are measured at fair

value or historical cost and (3) The fair value hierarchy or method applied to determining

fair value.12 Through reading the annual report, we identify 96 firms that are not actually

engaged in agriculture activities (i.e., they do not report biological assets on their financial

statements13 and eliminate them from the sample as a result. We also identify 18 firms

that do not apply fair value measurement for biological assets after IAS 41 adoption. We

do not include these firms in my sample as the measurement for biological assets do not

differ in the pre- and post-adoption period. Another 28 firms are excluded from our

sample because their annual reports are either unreadable (i.e., we are not able to translate

11
Biological Asset Gross, Biological Assets Accumulated Depreciation and Biological Asset NBV
represent biological assets that are classified as non-current, while Biological Assets Current represents
biological assets that are classified as current. Unrealized Valuation Gains/Losses Biological Assets
represents the gains or losses arising from changes in fair value of biological assets.
12
For firm-years when firm is not required to disclose fair value hierarchy information, we read through
the disclosure about the method applied to determine fair value of biological assets and classify them
among level 1, level 2 and level 3 (e.g., a discounted cash flow model is equivalent to a level 3 fair
value).
13
After checking with the database, this may result from the misclassification in their data-collecting
process (e.g., they misclassify mining assets as biological assets).
21
them into English) or do not present enough information for our analysis. The final sample

consists of 131 firms from 18 IFRS adopting countries. We call this sample as treatment

group, as they adopt and are affected by IAS 41 in the post-IAS 41 period. Table 1, Panel

A presents the process of sample selection of treatment group.

Inset Table 1 Here

Following DeFond et al. (2015), we start our sample of Non-IAS 41 adopters from

publicly traded firms in 19 countries that do not mandate IFRS adoption. We use SIC

code to identify firms that are potentially affected by IAS 41. We first tabulate the

distribution of the treatment group among SIC codes. Panel B of Table 1 presents the

distribution of the SIC code. Next, we utilize these codes as criteria to find non-IAS 41

adopting firms potentially affected by IAS 41. Specifically, we search for sectors that are

directly associated with agricultural activities from panel B of Table 1. In addition to

Division A: Agriculture, Forestry and Fishing (SIC code less than 1000, including 01

Agricultural Production Crops, 02 Agriculture production livestock and animal

specialties, 07 Agricultural Services, 08 Forestry and 09 Fishing, hunting and trapping).

The treatment group is mainly distributed among Division D: Manufacturing (2-digit SIC

code 20 to 39) and Division F (2-digit SIC code 50 and 51). Conceptually, Division A

should be affected by IAS 41 most, as they are most likely to engage in agricultural

activity defined by IAS 41. However, not every firm in Division D and Division F is

likely to be affected by IAS 41, as they do not necessarily transform biological assets.

Consequently, we include all firms that fall within Division A. For firms that fall within

Division D and Division F, we restrict the control sample to the sectors that are identical

with the treatment group and directly associated with agriculture activities (i.e., SIC

code=2015, 2026, 2034, 2033, 2041, 2048, 2051, 2061, 2063, 2068, 2074, 2079, 2084,

2085, 2092, 2095, 2096, 2411, 2493, 2499, 2621, 2676, 2821, 3021, 3061, 5146, 5148,
22
5149, 5154 and 5482). The final control sample consists of local GAAP users in 15 non-

IFRS adopting countries. We call this sample as control group. We then collect data for

treatment and control group during fiscal year 2000 to 2009 (5,793 firm-year

observations). 674 and 91 firm-year observations are excluded from our sample because

there is not sufficient data to calculate control variables and stock price synchronicity

respectively. Our final sample comprise 5,028 firm-year observations, with 712 firm-year

observations in treatment group and 4,316 firm-year observations in control group. Table

2, Panel A present our sample development process. Table 2, Panel B and Panel C present

the firm-year distribution of treatment group and control group among countries

respectively.

Inset Table 2 Here

4.4 Descriptive statistics

Section A, B and C of Table 3 present descriptive statistics of the dependent and

control variables included in our analysis for the full sample (N=5,028), subsample of

IAS 41 adopters (N=712) and the subsample of Non-IAS 41 adopters (N=4,316),

respectively. Section D of Table 3 presents the t-statistics for the mean differences

between IAS 41 and Non-IAS 41 adopters. The average stock price synchronicity

(SYNCH) is -1.064 for IAS 41 adopters and -1.028 for non-IAS 41 adopters. However,

the stock price synchronicityof IAS 41 adopters and non-IAS 41 adopters is not different

from each other. Both firm-specific and country-level controls are significantly different,

except for the potential earnings management (Accr).

Table 4 presents Pearson correlation coefficients between the variables included in

my regression. Stock price synchronicity (SYNCH) is positively associated with firm size

(Size), leverage (Leverage), trading volume turnover (VOL), reporting frequency (Freq)

and gross domestic product per capita (GDP), while it is negatively correlated with
23
earnings volatility (StdROA), return volatility (Sigma), potential earnings management

(Accr) and number of domestic listed companies (Nlist)

5. Empirical Results

5.1 Result for H1

Table 5 presents the regression results of the average effect of IAS 41 adoption on

stock price informativeness for firms engaging in agricultural activities. Columns (1)

include firm-level and country-level control variables, columns (2) include all control

variables and year-fixed effect, and columns (3) report full regression models with year-

fixed and country-fixed effect. As reported in Table 5, the coefficient of the interaction

term, POST  IAS41 , is significantly negative. This result is in line with the hypothesis

that IAS 41 adoption increases firm-specific information in the market, which, in turn,

lowers stock price synchronicity and makes stock price more informative. To check for

the existence of severe multicollinearity problems in our OLS regression model, none of

the VIFs are greater than 5. According to Gujarati (1995), the variance of the estimated

regression coefficients are not inflated due to multicollinearity in this test.

Insert Table 5 Here

6.0 Additional Analyses

6.1 Bearer plants and other biological assets

In June 2014, the IASB issued an amendment, excluding bearer plants from the

scope of IAS 41. This amendment is effective for annual reporting period after January 1,

2016. From then on, bearer plants are accounted for in accordance with IAS 16 Property,

Plant, and Equipment instead of IAS 41. Nevertheless, the produce on the bearer plants

remains in the scope of IAS 41.To shed further lights on the revision, we compare our

main results between bearer plants and other biological assets (including bearer animals,
24
consumable biological assets and produce). We expect that the effect of consumable

biological assets may differ from the effect of bearer biological assets. One main reason

is that plants used solely to bear agricultural produce differ from most other biological

assets because they are never sold (IASB, 2014). Bearer plants are closer in nature to in-

use assets. They are self-generating and realize value in combination with other assets.

Fair value information is found to be less decision-useful for this kind of asset. Changes

in the fair value of the bearer plants do not directly influence the entity’s future cash flows.

Fair value information for bearer plants is therefore less relevant to investors’ decision

making than fair value information for other biological assets. The IASB further note that

investors, analysts and other users of financial statements adjust the reported profit or loss

to eliminate the effects of changes in the fair values of bearer plants (IASB, 2014). This

implies that financial statement users are indifferent to the fair value information required

by IAS 41 for these assets.As a consequence, one can then expect that for firms

transforming bearer plants, IAS 41 adoption facilitates little firm-specific information

(i.e., there is not much difference in the pre- and post-IAS 41 period), leading to less firm-

specific information incorporated into stock price (i.e., a less informative stock price).

Given that there is not much empirical evidence regarding this issue, we do not know

whether and how the effect of IAS 41 differs between bearer plants and other biological

assets.

To test the difference in the effect of IAS 41 adoption on stock price synchronicity

between bearer plants and other biological asset (i.e., consumable biological assets and

bearer animals), we regress the firm-specific stock price synchronicity (SYNCH) on an

indicator variable for the type of biological assets (bearer plants versus other biological

assets), an indicator variable for the time period (pre- versus post-IAS 41 adoption period)

25
and the interaction between these two indicators. The research model is as follows:

SYNCH i , j ,t  0  1POSTi , j ,t  2 BearerPlanti. j ,t  3 POSTi, j ,t  BearerPlanti, j ,t  4 Sizei, j ,t

 5 Leveragei , j ,t  6 StdROAi , j ,t  7 Sigmai, j ,t  8VOLi, j ,t  9 Accri, j ,t  10 Freqi, j ,t
 11GDPj ,t  12 Nlist j ,t  YearDummies  CountryDummies  i , j.t
(4)

Where BearerPlant is an indicator variable that takes value of one for firms transforming

bearer plants and zero otherwise. The variable of interest is the interaction term, the

coefficient on which (β3) captures the difference in change in stock price synchronicity

between firms transforming bearer plants and firms transforming other biological assets.

We do not predict the sign for the interaction term (β3). A positive sign indicates a reduced

informativeness effect for bearer plants transforming firms following IAS 41 adoption. A

negative sign, on the contrary, indicates a strengthened effect. The definition of remaining

variables is the same as equation (3).

Table 6 presents the regression results of the difference in the effect of IAS 41

adoption between firms transforming bearer plant and other biological assets. Column (1)

includes firm-level and country-level control variables, column (2) includes all control

variables and year-fixed effect, and column (3) reports full regression models with year-

fixed and country-fixed effect. As shown in Table 6, the coefficient β3 on the interaction

term, POST  BearerPlant , is not statistically significant. Therefore, we fail to provide

evidence that the effect of IAS 41 adoption differs between firms transforming bearer

plants and their counterparts transforming other biological assets.

Insert Table 6 Here

26
7.0 Conclusion

In this study, we investigate whether the enhanced disclosure by IAS 41 facilitates

firm-specific information and make stock price more informative. Information about

biological assets are not directly available through financial reports prior to adoption of

IAS 41. Therefore, IAS 41 provide an ideal setting for testing whether the disclosure and

fair value information about biological assets improve financial report transparency and

motivate investors to trade on this information.

Using a sample of treatment group consisting of IAS 41 adopters from countries that

mandated IFRS adoption in 2005 and control group consist of non-IAS 41 adopters, we

find that stock price synchronicity is significantly lower for IAS 41 adopters following

IAS 41 adoption. This finding indicates that IAS 41 adoption facilitates the flow of firm-

specific information into stock market and correspondingly enhances stock price

informativeness. We next examine whether there is difference in the firm-specific

information disseminated through IAS 41 adoption between firms transforming bearer

plant and other biological assets. However, we fail to find any difference. Our conjecture

is that the channel through which IAS 41 adoption facilitate the flow of firm-specific

information lies in the enhanced disclosure, not asset measurement.

This study contributes to the literature in several ways. First, we contribute to the

literature by investigating the effect of fair value information of biological assets on stock

price informativeness. This topic received little attention of researchers in the past. We

complement prior studies by documenting the enhanced firm-specific information as a

result of implementing IAS 41. Second, we add to the literature of the ongoing debate

over fair value and historical cost accounting information. We provide evidence that fair

value measurement of biological assets and its disclosure improves financial report

transparency and makes more firm-specific information publicly available to investors,

27
motivating them to trade accordingly. Third, we complement previous studies on stock

price synchronicity (or stock price informativeness) by documenting that fair value

measurement disclosure is helpful in conveying firm-specific information to investors.

These results should be helpful to IASB as the Board evaluate the usefulness and

cost/benefit of its standards in this area.

28
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32
Appendix A Variable Definition
Variable Definition
Dependent and test variables
SYNCH Stock price synchronicity calculated by equation (2).
Indicator, coded 1 for firm-years after the adoption of IAS 41 (fair
POST
value measurement for biological assets).
IAS41 Indicator, coded 1 for firms adopting IAS 41 in 2005.
BearerPlant Indicator, coded 1 for firms transforming bearer plants.
Indicator, coded 1 for firms with biological assets significance above
High
the median of the treatment sample.
Indicator, coded 1 for firms using level 3 fair value for biological
Level3
assets.
Firm-specific controls
Firm size measured by the natural log of the total assets at the end of
Size
the year.
Leverage Ratio of total debt to total assets.
The historical standard deviation of ROA computed over the preceding
StdROA
5 years.
The standard deviation of firm-specific weekly returns over the firm-
Sigma
year t.
Trading volume computed as the total number of shares traded in a
VOL year , divided by the total number of shares outstanding at the end of
the year.
Absolute value of accounting accruals scaled by the absolute value of
Accr
operating cash flows.
Reporting frequency, measured by the number of interim financial
Freq
reports disclosed by a firm.
Country level controls
GDP Natural log of the gross domestic product per capita.
Nlist Natural log of the number of listed firms for a given country.

33
Figure 1 Overview and presentation example of IAS 4114

Panel A Scope and requirements of IAS 41

Panel B Balance sheet presentation after IAS 41

Panel C Income statement presentation after IAS 41

14
The example is taken from the 2015 annual report of R.E.A. holdings plc transforming oil palms, a
bearer biological asset.
34
Figure 2 Disclosure of biological assets under IAS 4115

Panel A Description of biological assets

Panel B Reconciliation table

15
The example is taken from the 2015 annual report of R.E.A. holdings plc transforming oil palms, a
bearer biological asset.
35
Panel C Determining fair value of biological assets

36
Table 1 Sample Selection and Distribution of treatment group
Panel A: Sample selection of treatment sample
# of firms
Firms with biological assets over the period 2005-2015 405
Less:
Annual reports are not available (132)
Firms not engaging in agricultural activities (96)
Firms with non-English report (17)
Annual reports without enough information (11)
Firms applying cost model to measure biological assets (18)
Treatment sample 131

Panel B: Distribution of treatment sample among sectors

SIC # of
Description
code firms
111 Wheat 1
116 Soybeans 1
119 Cash Grains, Not Elsewhere Classified 4
133 Sugar Cane and Sugar Beets 1
134 Irish Potatoes 2
139 Field Crops, Except Cash Grains, Not Elsewhere Classified 3
161 Vegetables and Melons 2
174 Citrus Fruits 2
179 Fruits and Tree Nuts, Not Elsewhere Classified 1
181 Ornamental Floriculture and Nursery Products 1
182 Food Crops Grown Under Cover 1
212 Beef Cattle, Except Feedlots 1
213 Hogs 1
241 Dairy Farms 4
252 Chicken Eggs 1
273 Animal Aquaculture 8
711 Soil Preparation Services 1
751 Livestock services, Except Veterinary 4
831 Forest Nuseries and Gathering of Forest Products 1
912 Finfish 2
913 Shellfish 1
1041 Gold Ores 1
1222 Bituminous Coal Underground Mining 1
1241 Coal Mining Services 1
1475 Phosphate Rock 1
1531 Operative Builders 1
2015 Poultry Slaughtering and Processing 4
37
Table 1 (Continued)
SIC # of
Description
code firms
2026 Fluid Milk 3
2033 Canned Fruits, Vegetables, Preserves, Jams, and Jellies 3
2034 Dried and Dehydrated Fruits, Vegetables, and Soup Mixes 1
2041 Flour and Other Grain Mill Products 2
2048 Prepared Feed and Feed Ingredients for Animals and Fowls, Except
5
Dogs and Cats
2051 Bread and Other Bakery Products, Except Cookies and Crackers 1
2061 Cane Sugar, Except Refining 1
2063 Beet Sugar 1
2068 Salted and Roasted Nuts and Seeds 1
2074 Cottonseed Oil Mills 1
2079 Shortening, Table Oils, Margarine, and Other Edible Fats and Oils,
1
Not Elsewhere Classified
2084 Wines, Brandy, and Brandy Spirits 4
2085 Distilled and Blended Liquors 1
2092 Prepared Fresh or Frozen Fish and Seafoods 4
2095 Roasted Coffee 1
2096 Potato Chips, Corn Chips, and Similar Snacks 2
2098 Macaroni, Spaghetti, Vermicelli, and Noodles 1
2297 Non-woven Fabrics 1
2329 Men's and Boys' Clothing, Not Elsewhere Classified 1
2411 Logging 1
2421 Sawmills and Planing Mills, General 1
2431 Millwork 1
2493 Reconstituted Wood Products 1
2499 Wood Products, Not Elsewhere Classified 1
2621 Paper Mills 7
2653 Corrugated and Solid Fiber Boxes 1
2676 Sanitary Paper Products 1
2821 Plastics Materials, Synthetic Resins, and Nonvulcanizable
1
Elastomers
2834 Pharmaceutical Preparations 1
2873 Nitrogenous Fertilizers 1
2875 Fertilizers, Mixing Only 1
3021 Rubber and Plastics Footwear 1
3061 Molded, Extruded, and Lathe-Cut Mechanical Rubber Goods 1
3312 Steel Works, Blast Furnaces, and Rolling Mills 1
3421 Cutlery 1
38
Table 1 (Continued)
SIC # of
Description
code firms
3446 Architectural and Ornamental Metal Work 1
3552 Textile Machinery 1
3721 Aircraft 1
4412 Deep Sea Foreign Transportation of Freight 1
4731 Arrangement of Transportation of Freight and Cargo 1
5052 Coal and Other Minerals and Ores 1
5093 Scrap and Waste Materials 1
5146 Fish and Seafoods 1
5148 Fresh Fruits and Vegetables 2
5149 Groceries and Related Products, Not Elsewhere Classified 1
5154 Livestock 1
5182 Wine and Distilled Alcoholic Beverages 1
5199 Nondurable Goods, Not Elsewhere Classified 1
5812 Eating Places 1
6512 Operators of Nonresidential Buildings 1
6531 Real Estate Agents and Managers 1
6552 Land Subdividers and Developers, Except Cemeteries 1
6799 Investors, Not Elsewhere Classified 1
7373 Computer Integrated Systems Design 1
7999 Amusement and Recreation Services, Not Elsewhere Classified 1
8744 Facilities Support Management Services 1
Total 131
Table 1 presents the selection of my treatment sample and their distribution among
sectors using primary four-digit SIC code.

39
Table 2 Overall Sample Development and Distribution
Panel A: Sample development
Firm-year obs.
Treatment and control firm years 2000-2009 5,793
Excluding firm years:
With insufficient data to calculate control variables 674
With insufficient data to calculate stock price synchronicity 91
Final sample 5,028

Panel B: Sample distribution of treatment group

Country Firm-year obs.
Australia 117
Belgium 10
Finland 20
France 10
Germany 12
Greece 15
Hong Kong 217
Ireland 13
Italy 8
Norway 33
Philippines 21
Poland 9
Portugal 16
South Africa 123
Spain 8
Sweden 4
Switzerland 10
UK 66
Total 712

40
Table 2 (Continued)
Panel C: Sample distribution of control group
Country Firm-year obs.
Argentina 83
Brazil 99
Canada 117
Chile 182
China 827
Indonesia 210
Japan 1,057
Korea 520
Mexico 31
Morocco 16
Pakistan 53
Sri Lanka 207
Taiwan 310
Thailand 230
United States 374
Total 4,316
Table 2 presents the firm-year distribution of full sample among both IAS 41 adopting and Non-IAS 41
adopting countries. Our sample includes firm-year observations of both treatment group and control
groups five years before and after IAS 41 adoption in 2005.

41
Table 3 Descriptive Statistics

Section A Section B Section C Section D

Full sample (N=5,028) IAS 41 adopters (N=712) Non-IAS 41 adopters (N=4,316) Diff. in mean
Mean Median SD Mean Median SD Mean Median SD t-value
SYNCH -1.033 -1.043 0.762 -1.064 -1.085 0.683 -1.028 -1.034 0.775 1.174
Size 12.326 12.309 1.700 12.448 12.532 1.899 12.306 12.278 1.664 -2.069**
Leverage 0.269 0.252 0.195 0.216 0.200 0.176 0.278 0.261 0.197 7.855***
StdROA 0.073 0.035 0.140 0.136 0.065 0.206 0.063 0.033 0.123 -13.079***
Sigma 0.048 0.040 0.034 0.056 0.045 0.035 0.047 0.040 0.034 -6.077***
VOL 1.480 0.469 2.739 0.577 0.306 0.827 1.628 0.517 2.910 9.580***
Accr 2.335 0.670 6.577 2.652 0.663 6.491 2.283 0.670 6.591 -1.389
Freq 2.129 3.000 1.167 1.428 1.000 0.913 2.245 3.000 1.164 17.832***
GDP 9.260 9.742 1.320 9.896 10.194 0.927 9.155 9.641 1.345 -14.159***
Nlist 7.025 7.259 0.972 6.553 6.934 0.969 7.103 7.333 0.950 14.253***
*, **, *** Indicate statistical significance at the 0.1, 0.05 and 0.01 levels for a two-tailed test respectively. Table 3 presents descriptive statistics for stock price synchronicity
and control variables. Our sample includes firm-year observations of both treatment group and control groups five years before and after IAS 41 adoption in 2005. See
Appendix A for variables definitions.

42
Table 4 Correlation table

SYNCH Size Leverage StdROA Sigma VOL Accr Freq GDP Nlist
SYNCH 1.000
Size 0.308*** 1.000
Leverage 0.007 0.114*** 1.000
StdROA -0.127*** -0.313*** 0.109*** 1.000
Sigma -0.238*** -0.369*** 0.167*** 0.418*** 1.000
VOL 0.046*** -0.006 0.122*** -0.000 0.208*** 1.000
Accr -0.024* -0.105*** 0.077*** 0.196*** 0.138*** 0.040*** 1.000
Freq 0.010 0.025* 0.025* -0.011 -0.021 0.004 -0.005 1.000
GDP 0.135*** 0.247*** -0.088*** 0.037*** -0.030** -0.052*** -0.055*** -0.190*** 1.000
*** ** *** *** *** ** ***
Nlist -0.013 0.157 0.029 0.038 0.040 0.151 -0.030 -0.067 0.547*** 1.000
*, **, *** Indicate statistical significance at the 0.1, 0.05 and 0.01 levels, respectively. Table 4 presents Pearson Correlation Coefficients for all test variables. Our sample
includes firm-year observations of both treatment group and control groups five years before and after IAS 41 adoption in 2005. See Appendix A for variables definitions.

43
Table 5 Overall effect of IAS 41 adoption on stock price synchronicity
SYNCH i , j ,t   0  1 POSTi , j ,t   2 IAS41i , j ,t  3 POSTi , j ,t  IAS41i , j ,t   4 Sizei, j ,t  5 Leveragei, j ,t
  6 StdROAi , j ,t   7 Sigmai , j ,t  8VOLi , j ,t  9 Accri , j ,t  10 Freqi , j ,t  11GDPj ,t
 12 Nlist j ,t  YearDummies  CountryDummies   i , j .t

(1) (2) (3)

POST 0.248*** 0.520*** 0.664***
(0.000) (0.000) (0.000)
IAS41 -0.040 -0.030 0.542
(0.359) (0.486) (0.109)
POST×IAS41 － -0.184*** -0.201*** -0.207***
(0.001) (0.000) (0.000)
Size 0.108*** 0.102*** 0.138***
(0.000) (0.000) (0.000)
Leverage 0.080 0.117** 0.010
(0.136) (0.026) (0.852)
StdROA 0.145* 0.170** 0.392***
(0.064) (0.030) (0.000)
Sigma -3.906*** -4.480*** -4.236***
(0.000) (0.000) (0.000)
VOL 0.025*** 0.024*** 0.034***
(0.000) (0.000) (0.000)
Accr 0.003* 0.002 0.001
(0.078) (0.244) (0.311)
Freq -0.026*** -0.050*** -0.004
(0.007) (0.000) (0.727)
GDP 0.091*** 0.079*** -0.463***
(0.000) (0.000) (0.000)
Nlist -0.122*** -0.113*** 0.027
(0.000) (0.000) (0.787)
Intercept -2.315*** -2.409*** 0.975
(0.000) (0.000) (0.104)
Year fixed effect No Yes Yes
Country fixed effect No No Yes
Observations 5028 5028 5028
Adjusted R2 0.161 0.224 0.295
*, **, *** Indicate statistical significance at the 0.1, 0.05 and 0.01 levels, respectively. Table 5 presents the
regression result of the impact of IAS 41 adoption on firm-level stock price synchronicity. See Appendix A for
variables definitions.

44
Table 6 Difference in effect of IAS 41 across biological asset classes
SYNCH i , j ,t  0  1POSTi , j ,t  2 BearerPlanti. j ,t  3 POSTi, j ,t  BearerPlanti, j ,t  4 Sizei, j ,t
 5 Leveragei , j ,t  6 StdROAi , j ,t  7 Sigmai , j ,t  8VOLi, j ,t  9 Accri, j ,t  10 Freqi, j ,t
 11GDPj ,t  12 Nlist j ,t  YearDummies  CountryDummies  i , j.t
(1) (2) (3)
POST 0.087 0.093 0.110
(0.163) (0.402) (0.451)
BearerPlant -0.090 -0.090 -0.091
(0.227) (0.208) (0.214)
POST×BearerPlant ? -0.021 -0.007 -0.007
(0.834) (0.945) (0.945)
Size 0.093*** 0.072*** 0.089***
(0.000) (0.000) (0.000)
Leverage 0.100 0.134 -0.010
(0.535) (0.396) (0.951)
StdROA 0.119 0.055 0.037
(0.319) (0.629) (0.752)
Sigma -1.448* -2.566*** -2.865***
(0.078) (0.002) (0.002)
VOL 0.079** 0.116*** 0.087**
(0.027) (0.001) (0.018)
Accr 0.003 0.002 0.001
(0.444) (0.674) (0.851)
Freq 0.076** 0.085** 0.130***
(0.023) (0.013) (0.003)
GDP -0.006 -0.002 -0.191
(0.837) (0.958) (0.356)
Nlist 0.004 -0.001 -0.115
(0.914) (0.983) (0.519)
Intercept -2.312*** -2.067*** 0.540
(0.000) (0.000) (0.852)
Year fixed effect No Yes Yes
Country fixed effect No No Yes
Observations 712 712 712
Adjusted R2 0.137 0.213 0.238
*, **, *** Indicate statistical significance at the 0.1, 0.05 and 0.01 levels, respectively. Table 6 presents the
regression result of the difference in effect of IAS 41 adoption between bearer plants and other biological assets.

See Appendix A for variables definitions.

45
46