Does the Mark-to-Model Fair Value Measure Make Assets Impairment Noisy?: A Literature Review

Dudycz, Tadeusz; Praźników, Jadwiga

doi:10.3390/su12041504

Cited by 15 publications

(10 citation statements)

References 70 publications

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“…Additionally, in a research, the implications of the implementation of the mark-tomodel fair value measures for asset impairment tests on the relevance and reliability of information presented in financial reports were examined (Dudycz and Praznikow 2021). They concluded that the implementation of asset impairment tests that use the mark-tomodel fair value measures is not promising for increasing the quality and reliability of the information presented in financial statements.…”

Section: Impairment Of Assets and Market Reaction-literature Overviewmentioning

confidence: 99%

Impairment of Assets and Market Reaction during COVID-19 Pandemic on the Example of WSE

Lisicki

2021

Risks

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The main task of the article is to examine the impact of the reported impairment of assets (IoA) on the market reaction of investors on the Warsaw Stock Exchange [WSE] in the crisis condition caused by the COVID-19 pandemic. There is a need to verify whether the disclosure of this information in the period of economic downturn will cause a similar negative reaction as in previous topics in this area. Research undertaken in this article helps identify the rules of behaviour (in the short term) whether the reaction of investors on updating the company’s assets in crisis conditions is different than in times of prosperity. The main hypothesis will be verified using the event study methodology. It allows to verify whether the upcoming information about IoA during the COVID-19 pandemic confirms an existence of statistically significant negative abnormal returns. Based on the 55 cases of current reports informing about IoA, which were submitted to the investors in the year 2020 and finally qualified for the research sample, I have not observed statistically significant negative abnormal returns on the adjacent days. The results are different from those obtained by researchers who study the market reaction to the IoA under non-crisis conditions of the economy.

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Section: Impairment Of Assets and Market Reaction-literature Overviewmentioning

confidence: 99%

Impairment of Assets and Market Reaction during COVID-19 Pandemic on the Example of WSE

Lisicki

2021

Risks

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“…Previous research showed that among the three levels of the fair value hierarchy, mark-to-model is most controversial because it is susceptible to manipulation and has poor verifiability. Previous research concluded that the implementation of asset impairment tests, that use the mark-to-model fair value measures, is not promising for increasing the quality and reliability of the information presented in financial statements [18].…”

Section: Prior Research and Hypothesismentioning

confidence: 99%

Financial Analyses and Corporate Evaluation on Sustainable Ability to Generate Excess Profit

2020

Sustainability

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This study empirically examined financial analyses and a market assessment on goodwill. Goodwill is not an individually identifiable asset but is recognized as an intangible asset because it is viewed as having future economic benefits from a business combination. The verification period for this study was from 2011 to 2019. The sample companies were 13,522 firms-years satisfying the selection criteria among listed companies in the Korean stock market. As a result of empirical analysis, it was found that goodwill is related to stock prices. Goodwill was shown to serve as useful accounting information by reflecting the economic realities of intangible assets called creating excess profitability and sustainable profit. For analysis, regression analysis was conducted by separating the companies listed on the KOSPI stock market and those listed on the KOSDAQ stock market. The results of the analysis were as follows. In the case of listed companies in the KOSPI stock market, goodwill was found to have a positive (+) stock price relationship as useful accounting information. These results suggested that goodwill is an asset that represents the ability to generate excess profit as a sustainable profit. The contributions of this study are as follows. First, this study verified that goodwill is related to stock prices even after the adoption of International Financial Reporting Standards (IFRSs). Second, it will be possible to induce rational decision-making regarding goodwill to accounting standards setters, supervisors, and users of financial information. Third, it recognized that the value of the financial market can be recognized only by providing reliable accounting information to the managers who prepare financial statements. This can lead managers to provide capital markets with more useful information.

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“…Fixed asset revaluation (FAR) is the formal process of restating the book value of an asset to its fair value (Brown et al, 1992;Rafay et al, 2019). The users of financial statements acknowledge the fair value of assets as more relevant to make apposite investments and other decisions (Barac and Sodan, 2011;Chea, 2011;Dudycz and Praźników, 2020). By providing fair value information of fixed assets, FAR helps reduce information asymmetry that, in turn, minimizes the opportunistic behavior of the management and facilitates accurate investment decisions (Zakaria et al, 2014).…”

Section: Introductionmentioning

confidence: 99%

Timing, Recurrence, and Effects of Fixed Asset Revaluation: Evidence From Bangladesh

Rahman¹,

Hossain

Haque

2021

IJEFI

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This study intended to explore when and how often fixed asset revaluation (FAR) is practiced in Bangladesh and explain the impacts of FAR on net asset value (NAV), stock prices, and debts of companies. Based on 175 listed companies on the Dhaka Stock Exchange, this study found increasing use of the revaluation model where the textile industry witnessed the highest number of revaluations. Most of the listed companies were irregular revaluer, and they performed FAR during the bull market in 2010. Most newly listed companies did it just before their initial public offerings (IPO). The results of the Wilcoxon signed-rank test imply that the changes in NAV, stock prices, and total debts after revaluation were statistically significant. This study found evidence of enhancing debt capacity and stock prices of several companies through improved NAV. The findings will assist regulators to recognize the consequence of revaluation and enable them to take an appropriate stance for controlling abusive and creative reporting. The study will also make investors cautious about companies with revaluation induced assets. This study suggests that companies practicing the revaluation model should perform FAR on regular intervals to reduce information asymmetry about assets' value and thus help improve investors' confidence.

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Does the Mark-to-Model Fair Value Measure Make Assets Impairment Noisy?: A Literature Review

Cited by 15 publications

References 70 publications

Impairment of Assets and Market Reaction during COVID-19 Pandemic on the Example of WSE

Impairment of Assets and Market Reaction during COVID-19 Pandemic on the Example of WSE

Financial Analyses and Corporate Evaluation on Sustainable Ability to Generate Excess Profit

Timing, Recurrence, and Effects of Fixed Asset Revaluation: Evidence From Bangladesh

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