Fixed Assets Revaluation and Future Firm Performance: Empirical Evidence from Indonesia

Azmi, Achmad Faizal; Ali, Syaiful

doi:10.33312/ijar.454

Cited by 6 publications

(11 citation statements)

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“…Although FAR has no direct effect on the current year's cash flow, it helps companies meet working capital needs by easing loan arrangements and reducing borrowing costs, which may positively influence future net profit after tax (NPAT) and net operating cash flow (NOCF). This argument is supported by Azmi and Ali (2019), who found a positive impact of FAR on future operating income. However, investors and lenders are more interested in NPAT and NOCF of concerned companies (Lee, Lee, Choi, & Kim, 2020;Nguyen & Nguyen, 2020).…”

Section: Hypothesis Regarding Far and Financial Numbers Gamementioning

confidence: 82%

“…Using panel data of five years, Jamshidian and Sharifabadi (2016) found a significant positive association between capital increased through FAR and FFP expressed by operating profit and cash flows. The study by Azmi and Ali (2019) investigated the future effects of FAR and found positive effects on operating income but no significant effect on cash flow in Indonesia. The study conducted by Abbas, Fazal, Ali, and Faisal (2019) merely on the cement sector in Pakistan found a significant negative impact of FAR on FFP.…”

Section: Future Firm Performance (Ffp) and Farmentioning

confidence: 99%

“…Researchers such as Brown et al (1992), Seng and Su (2010), Iatridis and Kilirgiotis (2012), Azmi and Ali (2019), and others argued that FAR signals the growth potential of companies to investors. Conversely, some others argued that FAR provides a 'costly signal' for the future because of its adverse effect on ROA and ROE caused by increased assets and depreciation on assets.…”

Section: Hypothesis Regarding Far and Financial Numbers Gamementioning

confidence: 99%

See 2 more Smart Citations

Does Fixed Assets Revaluation Create Avenues for Financial Numbers Game? Evidence from a Developing Country

Rahman¹,

Hossain²

2020

JAFEB

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The study reveals the extent of changes in selective financial numbers caused by fixed asset revaluation (FAR) and explores whether there was a management motive for playing the financial numbers game through using the FAR model. The data set consists of a sample of 142 listed companies purposively selected from 13 industries. The study found a significant impact of FAR on the net asset value (NAV), fixed asset intensity (FAI), and debt-to-equity ratio (DER). These findings are supported by the political cost and the debt covenant hypotheses. The study also observed a high growth of fixed assets by 9.5% to 14,603.8% resulting from FAR. More revealing is that FAR increased NAV in revaluer companies by an average of 427.20% as compared to 6.86% in non-revaluer companies. Even some companies with negative NAV took resort on FAR to show positive NAV. Besides, revaluer companies managed to reduce their DER by 70.45% as opposed to an increase of 8.45% in non-revaluer companies. Hence, the study concludes that most of the publicly-listed companies are involved in financial numbers game by the use of the FAR model. To build confidence among investors, companies should practice FAR rightly and disclose related information to help reduce information asymmetry.

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Section: Hypothesis Regarding Far and Financial Numbers Gamementioning

confidence: 82%

Section: Future Firm Performance (Ffp) and Farmentioning

confidence: 99%

Section: Hypothesis Regarding Far and Financial Numbers Gamementioning

confidence: 99%

See 1 more Smart Citation

Does Fixed Assets Revaluation Create Avenues for Financial Numbers Game? Evidence from a Developing Country

Rahman¹,

Hossain²

2020

JAFEB

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“…The main argument behind FAR may be to show the fair value of fixed assets in the balance sheets of the respective companies (Azmi and Ali, 2019). Besides, companies applying the FAR model may have one or more objectives, such as determining the actual rate of return; identifying the appropriate market value of fixed assets; getting a bank loan by mortgaging assets; settling an asset price in case of merger or acquisition; communicating performance expectations for enhancing borrowing capacity and avoiding takeovers (Brown et al, 1992;Abody et al, 1999).…”

Section: Introductionmentioning

confidence: 99%

“…Besides, companies applying the FAR model may have one or more objectives, such as determining the actual rate of return; identifying the appropriate market value of fixed assets; getting a bank loan by mortgaging assets; settling an asset price in case of merger or acquisition; communicating performance expectations for enhancing borrowing capacity and avoiding takeovers (Brown et al, 1992;Abody et al, 1999). Moreover, through upward FAR, managers can increase the equity of the stockholders, reduce the debt to equity ratio (DER), ensure an appropriate debt-equity mix in corporate capital structure, and reduce the debt costs (Azmi and Ali, 2019). Furthermore, upward FAR through the resultant increase of assets as well as equity also reduce profitability ratios, such as return on equity (ROE) and return on assets (ROA).…”

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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Timing, Recurrence, and Effects of Fixed Assets Revaluation: Evidence from Bangladesh

2021

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Fixed Assets Revaluation and Future Firm Performance: Empirical Evidence from Indonesia

Cited by 6 publications

References 0 publications

Does Fixed Assets Revaluation Create Avenues for Financial Numbers Game? Evidence from a Developing Country

Does Fixed Assets Revaluation Create Avenues for Financial Numbers Game? Evidence from a Developing Country

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

Timing, Recurrence, and Effects of Fixed Assets Revaluation: Evidence from Bangladesh

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