Asset revaluations and assessment of borrowing capacity

Cotter, Julie and Zimmer, Ian (1995) Asset revaluations and assessment of borrowing capacity. Abacus, 31 (2). pp. 136-151. ISSN 0001-3072

Abstract

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.


Statistics for USQ ePrint 19140
Statistics for this ePrint Item
Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Permanent restricted access to published version due to publisher copyright policy.
Depositing User: Prof. Julie Cotter
Faculty / Department / School: Historic - Faculty of Business - Department of Accounting
Date Deposited: 13 Jul 2011 04:27
Last Modified: 03 Jul 2013 00:40
Uncontrolled Keywords: valuation; assets; borrowing; liquidity
Fields of Research (FOR2008): 15 Commerce, Management, Tourism and Services > 1501 Accounting, Auditing and Accountability > 150103 Financial Accounting
15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150203 Financial Institutions (incl. Banking)
14 Economics > 1401 Economic Theory > 140104 Microeconomic Theory
Socio-Economic Objective (SEO2008): B Economic Development > 91 Economic Framework > 9104 Management and Productivity > 910402 Management
URI: http://eprints.usq.edu.au/id/eprint/19140

Actions (login required)

View Item Archive Repository Staff Only