An Investigation of Revaluations of Tangible Long-Lived Assets

Easton, Peter D.; EDDEYt, Peter H.; Trevor, S

doi:10.2307/2491161

Cited by 224 publications

(160 citation statements)

References 14 publications

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“…Previous research suggests that upward revaluations are relevant for the capital markets, and that they are associated with future operating performance (Easton, Eddey and Harris (1993), Barth and Clinch (1998), Harris and Muller (1998), Aboody, Barth and Kasznik (1999)). In particular, Barth and Clinch (1998) find that the market considers both director and independent revaluations to be value relevant.…”

Section: Aasb 1010 Accounting Formentioning

confidence: 96%

“…We maintain the assumption that firms have incentives to inflate the values of their assets. This assumption appears reasonable given that prior research into asset revaluations has found that they provide the firm with benefits such as increases in debt capacity, positive signals to equity markets, and reductions in political costs (e.g., Whittred and Chan, 1992;Brown, Izan and Loh, 1992;Easton, Eddey and Harris, 1993;Cotter and Zimmer, 1995). To the extent that opportunism causes upward bias in the amount of the revaluation increment, the reliability of the revaluation is reduced.…”

Section: Hypothesis Developmentmentioning

confidence: 97%

“…Asset revaluations are identified using data generously supplied by Easton, Eddey and Harris (1993) and Easton and Eddey (1997 identify who performed the revaluation and which asset class was revalued.…”

Section: Sample Selectionmentioning

confidence: 99%

“…Asset revaluations have received considerable research interest recently (Easton, Eddey and Harris (1993), Barth and Clinch (1998) and Aboody, Barth and Kasznik (1999)). They represent a major departure from historical cost accounting, allowing the book value of non-current assets to be adjusted from historical cost to some other value (for example, fair or market value).…”

Section: Introductionmentioning

confidence: 99%

“…Such departures are questioned on the grounds of relevance and reliability. Advocates of revaluation cite increased relevance of financial reports, while opponents cite a loss of reliability (e.g., Easton, Eddey and Harris, 1993).…”

Section: Introductionmentioning

confidence: 99%

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Cotter¹,

Richardson²

2002

Review of Accounting Studies

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In this paper we examine whether there are differences in the reliability of asset revaluations made by boards of directors versus independent (external) appraisers. We use a sample of recognized Australian asset revaluations. As a first step we examine the determinants of the choice between director-based revaluations and those undertaken by independent appraisers. We find that independent appraisers are more likely to be used for revaluations of land and buildings and directors are more likely for investments, plant and equipment and identifiable intangibles.We interpret this as evidence of firms harnessing directors' knowledge of asset specificities. We also find that firms with less independent boards are more likely to use independent appraisers.We interpret this as evidence of substitutability between governance mechanisms. As for differences in reliability, we find that revaluations of plant and equipment that are made by independent appraisers are more reliable than those by directors. However, we are unable to detect a difference for other classes of non-current assets. We define reliability in terms of expost adjustments of recognized value increases. Reliability is determined by an examination of the extent to which upward revaluations are subsequently reversed.

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