固定资产重估.docx

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固定资产重估

Incentivesforfixedasset

revaluations:

theUKevidence

GeorgeEmmanuelIatridis

DepartmentofEconomics,UniversityofThessaly,Volos,Greece,and

GeorgeKilirgiotis

GreekYellowPages,Athens,Greece

Abstract

Purpose–Thepurposeofthispaperistoexaminetheincentivesforfixedassetrevaluation.The

motivesthatareinvestigatedincludefirmsize,fixedassetintensity,firmforeignoperationsand

acquisitions,firmindebtednessandearningsmanagementinclination.

Design/methodology–Thestudyutiliseslogisticandlinearregressionstotestthehypothetical

relationssetupinthestudy.Thecategorisationofsamplecompaniesintothosethatperformasset

revaluationsandthosethatdonotisbasedontheexaminationoffirms’annualreports.

Findings–Thefindingsofthestudyprovideevidencethatfirmsizeispositivelyrelatedtofixed

assetrevaluation.Firmswithforeignoperations,withlowfixedassets,andwithhighdebtcapital

needsaremorelikelytoperformfixedassetrevaluations.Thisisalsothecaseforfirmsthatcarryout

acquisitions.Thestudyalsoshowsthatfixedassetrevaluationisnegativelyrelatedtoearnings

management.

Researchlimitations/implications–Firmsthatrevaluetheirfixedassetsshouldexaminethe

signalsthatarelikelytobeconveyedtoinvestorsabouttheirmanagerialabilityandfinancial

prospects.Firmswouldtendtorevaluetheirfixedassetswhenitislikelytoresultinmaximum

favourablefinancialconsequences.Futureresearchshouldinvestigatethepossibleopportunismin

firms’behaviour,aswellasthestockmarketreactiontofixedassetrevaluations.

Originality/value–Thepaperisusefulforinvestorsandfinancialanalysts,asitshedslightonthe

motivesforfixedassetrevaluations.Thereportingofassetvaluesbasedonfairvalueswouldassist

theminmakingunbiasedpredictionsaboutfirms’futureperformance.Thepapergivesinsightabout

thefinancialattributesoffirmsthatperformfixedassetrevaluations.Forexample,firmswithcapital

needswouldbeinclinedtoundertakeafixedassetrevaluationinordertoreinforcetheirfinancial

position.

KeywordsUnitedKingdom,Fixedassets,Revaluation,Fixedassetrevaluation,Financialleverage,

Acquisitionsandmergers,Earningsmanagement

PapertypeResearchpaper

1.Introduction

Itisevidentthatfirmstendtorevaluetheirfixedassets（CotterandZimmer,2003;

Missonier-Piera,2007）.Theincentivesforfixedassetrevaluationdifferfromfirmto

firm.Itisarguedthatopportunismmayincertaincasesdrivetheneedforfixedasset

revaluation（Brownetal.,1992）.Aboodyetal.（1999）reportthatthereisapositive

relationbetweenassetrevaluationandannualreturns.Firmswithhighlevelsofdebt

tendtorevaluefixedassetsinanefforttoovercomedebtrestrictionsortoreducedebt

costs（Brownetal.,1992;CourtenayandCahan,2004）.Firmswithforeignoperations

mayalsoperformfixedassetrevaluations,inordertoreinforceandfacilitatetheir

financialprospects.

Thecurrentissueandfulltextarchiveofthisjournalisavailableat

ReceivedJune2011

AcceptedJune2011

JournalofAppliedAccounting

Research

Vol.13No.1,2012

pp.5-20

rEmeraldGroupPublishingLimited

0967-5426

DOI10.1108/09675421211231871

JELclassification—M41

TheauthorswouldliketothanktheformerEditorofJAAR,ProfessorKumbaJallow,andtwo

anonymousrefereesfortheirusefulcommentsonpreviousdraftsofthepaper.

5

Incentivesfor

fixedasset

revaluations

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LinandPeasnell（2000）claimthatfixedassetrevaluationsmaybecostly.They

reportthatcompaniesthatrevaluetheirfixedassetsusuallyhavealargenumberof

assetsandareabletocovertheirfinancialneeds.Itisarguedthattheelapsedtime

sincethepreviousfixedassetrevaluationmayplayasignificantrolewhenassessing

theeffectivenessandthebenefitsofarevaluation（LinandPeasnell,2000）.

Fixedassetrevaluationmaybeusedasameansofearningsmanagement,

especiallywhentheprofitthatoccursfromafixedassetssaleisestimatedona

historicalcostbasis（Blacketal.,1998）.Firmsmayalsobeinclinedtoimplement

upwardrevaluationssoastopositivelyinfluencethevalueoftheirassetsandfinancial

picture.Aboodyetal.（1999）reportthatapositivecorrelationexistsbetweenupward

assetrevaluationsandafirm’sfuturefinancialperformance.Itfollows,therefore,that

managerialdecisionmakingmaybeinfluencedbyassetvalueconsiderations.

IAS16“Property,PlantandEquipment”statesthatrevaluationsmustbecarried

outregularlyinordertomakesurethatthecarryingamountofanassetisnot

materiallydifferentfromtherespectivefairvalueattheendoftheaccountingyear.The

increaseinthevalueofanassetduetoarevaluationmustbetakentoother

comprehensiveincome.Ifitconstitutesareversalofarevaluationdecrease,thenit

shouldberecognisedintheincomestatement.AccordingtoIAS36“Impairmentof

Assets”,afixedassetmustbesubjectedtoregularimpairmentteststoensurethatthe

carryingvaluedoesnotexceedtherecoverableamount.Iftheassetiscarriedatcost,

theimpairmentlossmustbetakentotheincomestatement,unlesstheassethas

previouslybeenrevalued.Animpairmentlossthatisrelatedtoapreviouslyrevalued

assetmustbeaccountedforasarevaluationdecrease.

Thisstudyinvestigatestheincentivesthatmaymotivateafirmtoperform

fixedassetrevaluations.Itparticularlyexamineswhetherfixedassetrevaluationis

relatedwiththesizeofafirm,andsubsequentlywhetheralargefirmwouldbe

morelikelytorevalueitsfixedassets.Thestudyalsoseekstodeterminewhether

firmsrevaluetheirassetsinanefforttoreinforcetheirfinancialnumbersand

prospects.Inaddition,itassesseswhethertheissueofdebtcapitalconstitutesa

motiveforfirmstoimplementafixedassetrevaluation.Thestudyalsoexamines

whetherfirmsthathaveforeignoperationsormakeacquisitionsareinclinedto

performfixedassetrevaluations,inordertoimprovetheirasset-relatedfiguresand

financialpicture.Thestudyfinallyseekstoidentifytherelationbetweenfixedasset

intensityandearningsmanagementandthedecisiontocarryoutfixedasset

revaluations.

Thestructureofthestudyisasfollows.Section2presentstheliteraturereview.

Section3discussestheresearchhypotheses.Section4presentsthedataandmethods

usedintheempiricalanalysis.Section5reportstheempiricalresults,whileSection6

presentstheconclusionsofthestudy.

2.Fixedassetrevaluations

Firmsresorttoupwardrevaluationsinanefforttopresentafavourablefinancial

situationandattractinvestorsandreinforcetheirinvestmentopportunities（Missonier-

Piera,2007）.Firmstendtobeeagertoreportupwardrevaluationsbutreluctantto

reportdownwardrevaluations,inwhichcasetheymightarguethatanydownward

revaluationsaretemporaryandnotlikelytooccurinthefuture.Sinceanupwardasset

revaluationcanprovidefirmswiththeabilitytoequalisetheirbookvaluewiththeir

marketvalue,itcanbeassumedthatitmayalsoreducethepossibilityofundervalued

bids（Eastonetal.,1993）.

6

JAAR

13,1

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WhittredandChan（1992）findasignificantrelationbetweenfixedassetrevaluation

andcompanysize.Also,AbeysekeraandGuthrie（2005）suggestthatfirmsizecanbea

significantfactorinexplainingtheprovisionofvoluntarydisclosures.

Largefirmsarevisibleinthecapitalmarketandwouldthereforebemorelikelyto

disclosemoreinformation.Similarconsiderationswouldholdforfirmsthathave

foreignoperationsandforeignfinancialexposure（MubarakandHassan,2006）.In

asimilarvein,firmsthatoperateinternationallytendtoprovidehigherlevelsof

disclosure,especiallywhentheydisplayhigherdebtratiosandneedtoreporttotheir

creditors（Zarzeski,1996）.

Firmstendtorevaluetheirfixedassetsupwardinanefforttoovercomedebt

limitations,obtaineasieraccesstodebtmarketsandavoiddebtcovenantviolations

（WhittredandChan,1992;Cotter,1999;JaggiandTsui,2001）.Fixedassetrevaluation

mayalsoleadtolessrestrictivedebtcovenantsanddebtcostsandhigherfinancial

flexibilityforfirms（Blacketal.,1998;LinandPeasnell,2000）.Fixedassetrevaluations

areconsideredasalow-costwayoffacingunderinvestmentandliquidityproblems

（WhittredandChan,1992）.Fixedassetrevaluationsmayalsoresolvesituations,

wherebydebtcontractsrestrictborrowingtoacertainproportionoftangiblefixed

assets,reducingthusthenumberofnetpositivevalueprojectsthatcouldultimatelybe

financed（CourtenayandCahan,2004）.WhittredandChan（1992）reportthatfirmstend

torevaluetheirfixedassetsinanefforttoextendtheirborrowingcapacity.

Theincentivesforfixedassetrevaluationmaydifferfromfirmtofirm（Jaggiand

Tsui,2001）.Hence,theincentivesdrivinghigh-debtfirmstorevaluetheirfixedassets

maydifferfromthoseoflow-debtfirms（Brownetal.,1992）.Aboodyetal.（1999）argue

thatmanagers’decisionsmaybeinfluencedbyassetvalueconsiderations,andprovide

evidenceofapositiverelationbetweenupwardassetrevaluationsandfirms’

performance.Opportunismmayalsourgefirmstorevaluetheirassetsinorderto

improvetheirfinancialpictureandprospects.So,high-debtfirmsmaybeinclinedto

managetheiraccountingnumbers,inordertoloosentheirdebtcovenantconstraints

anddealwithunderinvestment.

3.Research