The revaluation of assets as a signalling device: a theoretical and an empirical analysis

In many countries, firms can choose whether or not to report a revaluation in the financial statements. An analytical model is developed to indicate conditions in which it is more likely that successful firms will choose not to revalue assets as a credible signal to potential investors. These industry settings include a high variance in performance and low equity-to-debt ratios. The empirical results for Belgium confirm that successful firms are less likely to revalue assets in those industries. However, only the revaluation of fixed tangible assets and not financial assets seems to be a credible signal. Finally, the results support the choice to revalue, but not the amount of revaluation, as a signalling device.     

Fixed Asset Revaluations and Managerial Incentives

The study attempts to explain why Australian companies revalue their fixed assets, when a revaluation, by itself , has no discernible direct effect on cash flows and is costly to carry out. A revaluation is hypothesised to affect contracting and political costs. It may also help resolve problems associated with information asymmetries, or be used to signal information to investors. The results support the proposition that economic forces help explain the decision to revalue assets.     

Motives for and Effects of Asset Revaluation: An Examination of South Korean Data

Examining a sample of South Korean firms, of which 201 revalued assets and 899 did not during the period 2008–2009, we find that the average debt cost, equity cost, and weighted average cost of capital (WACC) are higher among the firms that revalued. Firms with higher equity costs and leverage are more likely to revalue and the propensity has a negative relationship with profitability, cash flow, and Tobin’s q. Firms that engage in revaluation experience reductions in all capital costs from year ?1 to +1, comparable to those among firms that did not revalue. Our results support both the information hypothesis and the debt-cost hypothesis.     

The Case Against Asset Revaluations

The upward revaluation of non-current assets is a common feature of contemporary accounting in Australia. This paper presents a case against the practice. The effects of revaluations are examined and possible reasons why firms revalue are considered. It is argued that asset revaluation is theoretically unsound, being inconsistent with the accounting structure within which it occurs. It is concluded that there are significant costs but few obvious benefits associated with revaluation.     

Asset revaluations,future firm performance and firm-level corporate governance arrangements: New evidence from Brazil

Using a sample of Brazilian listed firms for the period 1998–2004 we find evidence that revaluations of fixed assets are negatively related to future firm performance, prices and returns. We also find that the decision to revalue is negatively associated with scores on a Brazilian Corporate Governance Index (BCGI) and positively associated with indebtedness and illiquidity. Our results suggest that revaluations of fixed assets in Brazil are not designed to convey information to external users of financial statements but rather to improve equity positions – opportunistic motivations. Our evidence also corroborates the idea that firms that adopt superior voluntary governance arrangements are less likely to engage in actions designed to manipulate their financial statements. These results lend support to the recent amendment to the Company law which eliminated the revaluation option for Brazilian firms despite the current process of IFRS convergence.     

Asset Revaluations and Assessment of Borrowing Capacity

Prior research has found support for contracting, political cost and information asymmetry explanations for managements’ decision to revalue non-current assets. This study proposes that asset revaluations occur to signal available borrowing capacity via an increase in collateral values at the time of increases in secured debt and that the economic benefits associated with an asset revaluation will be greatest for firms when they are experiencing times of declining cash flows from operations. Results imply that firms that have undertaken an asset revaluation are more likely to be experiencing declining cash flows from operations than firms that have not revalued. This study also investigates whether the incidence of valuations coincides with increases in levels of secured borrowings due to lenders’ demands for current values of assets offered as collateral. The evidence indicates that firms are more likely to record an asset revaluation if they have increased their secured borrowings, and that most non-year-end revaluations emanate directly from contracting with lenders.     

Fixed Asset Revaluation and Equity Depletion in the UK

UK GAAP has traditionally allowed the write-off of purchased goodwill directly to reserves, resulting in the widespread depletion of book equity. Companies have also been permitted to revalue fixed assets at management's discretion. This study examines whether upward revaluations have been associated with the depletion of book equity and with other costly contracting explanations identified in prior research. Our results provide strong support for the equity depletion hypothesis, both with regard to the decision to revalue and the timing of the revaluations. Indebtedness, liquidity, size and fixed asset intensity are also consistently associated with upward revaluation.     

Fixed Asset Revaluation and Equity Depletion in the UK

UK GAAP has traditionally allowed the write-off of purchased goodwill directly to reserves, resulting in the widespread depletion of book equity. Companies have also been permitted to revalue fixed assets at management's discretion. This study examines whether upward revaluations have been associated with the depletion of book equity and with other costly contracting explanations identified in prior research. Our results provide strong support for the equity depletion hypothesis, both with regard to the decision to revalue and the timing of the revaluations. Indebtedness, liquidity, size and fixed asset intensity are also consistently associated with upward revaluation.     

流动性幻觉与高杠杆率之谜

本文研究信用货币体系下流动性不足导致的过度投资和高杠杆率问题。文章将货币引入到消费者与银行互动的三期经济框架中,构建信用货币体系下的偏好冲击与流动性冲击模型,阐明消费者的购买力、经济投资效率和杠杆率都在一定程度上取决于流动性背后的价值支撑,而非仅由流动性的名义数量决定。本文指出,流动性的价值支撑主要体现为央行储备资产和政府财政收入,其水平决定了经济体系内短期消费的支付能力,流动性的价值支撑不足会导致过度投资和高杠杆率。进一步基于中国数据的实证分析验证了理论模型的主要结论。本文研究结果提示,在经济双循环体系下,货币政策与财政政策的协调配合尤为重要,维持央行储备资产规模并保持合理税率水平可以缓解流动性的价值支撑不足和高杠杆率问题。     

外资股权、外币资产负债结构对我国银行稳定性影响的研究

目前,国际资本流动影响我国银行稳定性主要通过两条路径：一是通过持有我国商业银行股权,二是通过改变商业银行的资产负债结构。本文运用15家股份制商业银行2006—2012年面板数据,从微观角度探讨了外资股权结构、外币资产负债结构对其稳定性造成的影响。实证结果表明：（1）外资股权对商业银行稳定性影响在不同银行之间存在着一定差异;（2）外币资产负债结构对于我国商业银行稳定性有明显影响。据此,本文从外资股权、外币资产负债结构方面提出了商业银行稳定性管理的建议。     

Macroeconomic Shocks and Banks' Foreign Assets

Recent developments in international financial markets have highlighted the role of banks in the transmission of shocks across borders. We employ dynamic panel methods for a sample of OECD countries to analyze whether banks' foreign assets react to macroeconomic shocks at home and abroad. We find that banks reduce their foreign assets in response to a relative increase in domestic interest rates, and they increase their foreign assets when the growth rate of world energy prices rises. The responses are characterized by a temporal overshooting and a dynamic adjustment process that extends over several quarters.     

The spread of deposit insurance and the global rise in bank asset risk since the 1970s

We construct a new measure of deposit insurance generosity for many countries, empirically model the exogenous international influences on the adoption and generosity of deposit insurance and use a novel econometric method to explore the causal chain from the expansion of deposit insurance generosity to increased overall lending, increased lending to households, increased banking system leverage, and more severe and frequent banking crises. Greater deposit insurance generosity robustly produces greater overall lending relative to bank assets and more lending to households relative to both bank assets and GDP, and results in higher banking system leverage. Our estimates, however, are not conclusive regarding whether greater deposit insurance generosity resulted in greater total loans relative to GDP or in more frequent or severe banking crises.     

International business cycles with domestic and foreign lenders

We examine the international transmission of business cycles in a two-country model where credit contracts are imperfectly enforceable. In our economy, foreign lenders differ from domestic lenders in their ability to recover value from borrowers’ assets and, therefore, to protect themselves against contractual non-enforceability. The relative importance of domestic and foreign credit frictions changes over the cycle. This induces entrepreneurs to adjust their debt exposure and allocation of collateral between domestic and foreign lenders in response to exogenous productivity shocks. We show that such a model can explain the comovement of output across countries.     

Profitability and capital structure: Evidence from import penetration

Firms experiencing increases in import competition significantly reduce their leverage ratios by issuing equity and selling assets to repay debt. Using import tariffs and foreign exchange rates as instrumental variables for import penetration, I show that these results are not manifestations of endogenous relations between import competition and leverage. The results are consistent with traditional trade-off models of capital structure that predict a positive relation between book leverage and expected future profitability. Further evidence suggests that import competition affects leverage through changes in the trade-off between the tax benefits of debt and the costs of financial distress.     

向国际财务报告准则过渡对欧洲企业财务报告的影响

本文以巴黎股市CAC 40大股和欧洲其他股市的21家公司为样本,研究了向国际财务报告准则(IFRS)过渡对欧洲上市公司财务报告的影响。研究发现这一影响是有限的和平稳的。首次采用IFRS使样本公司的合并报告净利润平均水平明显提高,权益资本略有减少。总量分析和回归分析均显示:商誉、无形资产、库藏股、汇率变动、资产重估、养老金和金融工具等项目的调整是产生披露差异的主要影响因素,规模较大的企业报告盈利指标调高较多。     

Predicting systematic risk: Implications from growth options

In accordance with the well-known financial leverage effect, decreases in stock prices cause an increase in the levered equity beta for a given unlevered beta. However, as growth options are more volatile and have higher risk than assets in place, a price decrease may decrease the unlevered equity beta via an operating leverage effect. This is because price decreases are associated with a proportionately higher loss in growth options than in assets in place. Most of the existing literature focuses on the financial leverage effect: This paper examines both effects. We show, with a simple option pricing model, the opposing effects at work when the firm is a portfolio of assets in place and growth options. Our empirical results show that, contrary to common belief, the operating leverage effect largely dominates the financial leverage effect, even for initially highly levered firms with presumably few growth options. We then link variations in betas to measurable firm characteristics that proxy for the fraction of the firm invested in growth options. We show that these proxies jointly predict a large fraction of future cross-sectional differences in betas. These results have important implications on the predictability of equity betas, hence on empirical asset pricing and on portfolio optimization that controls for systematic risk.     

International Portfolio Investment Flows

This article develops a model of international equity portfolio investment flows based on differences in informational endowments between foreign and domestic investors. It is shown that when domestic investors possess a cumulative information advantage over foreign investors about their domestic market, investors tend to purchase foreign assets in periods when the return on foreign assets is high and to sell when the return is low. The implications of the model are tested using data on United States (U.S.) equity portfolio flows.     

Can the Gains from International Diversification Be Achieved without Trading Abroad?

We examine whether portfolios of domestically traded securities can mimic foreign indices so that investment in assets that trade only abroad is not necessary to exhaust the gains from international diversification. We use monthly data from 1976 to 1993 for seven developed and nine emerging markets. Return correlations, mean-variance spanning, and Sharpe ratio test results provide strong evidence that gains beyond those attainable through home-made diversification have become statistically and economically insignificant. Finally, we show that the incremental gains from international diversification beyond home-made diversification portfolios have diminished over time in a way consistent with changes in investment barriers.     

The Effect Of International Acquisitions on Firm Leverage

To determine whether corporate international diversification leads firms to increase their leverage, we perform an event study that compares the leverage of corporations before and after they acquire foreign subsidiaries. We find that on average leverage increases from the first to the third year following the acquisition. When we examine the relation between additional debt financing after foreign acquisitions and the characteristics of these acquisitions, we find that in addition to such major determinants as size and profitability, debt financing is explained by geographical and industrial diversification effects.     

Liquidation Values and Debt Capacity: A Market Equilibrium Approach

We explore the determinants of liquidation values of assets, particularly focusing on the potential buyers of assets. When a firm in financial distress needs to sell assets, its industry peers are likely to be experiencing problems themselves, leading to asset sales at prices below value in best use. Such illiquidity makes assets cheap in bad times, and so ex ante is a significant private cost of leverage. We use this focus on asset buyers to explain variation in debt capacity across industries and over the business cycle, as well as the rise in U.S. corporate leverage in the 1980s.