Asset revaluations and debt contracting

Cotter, Julie (1999) Asset revaluations and debt contracting. Abacus, 35 (3). pp. 268-285. ISSN 0001-3072

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The research question investigated is “Do managers of Australian firms use upward asset revaluations to reduce debt contracting costs?” Prior research, using sample periods from the 1970s and early 1980s, provides evidence that asset revaluations are used to reduce the costs of debt contracting (see Whittred and Chan, 1992; Brown, Izan and Loh, 1992; and Cotter and Zimmer, 1995). However, considerable changes to the institutional setting have occurred in the past decade. These institutional changes include increased regulation of asset revaluations and disclosures, changes in the macroeconomic environment, and changes in the Australian debt market. Particularly, there has been a shift in emphasis from public to private debt. The relationship between asset revaluations and debt contracting is examined in the current setting, using refined measures of contracting variables. Interestingly, the results of prior research do not replicate in the current setting. In order to further examine the potential impact of changes to the institutional setting, a series of interviews with Chief Financial Officers is undertaken. The conclusion drawn from this additional analysis is that the relatively closer relationship between firms and their bankers in the current institutional setting has caused many firms to choose footnote disclosure of undervalued assets in preference to recognising an upward asset revaluation in the balance sheet.

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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Author Posting. © Julie Cotter (1999) This is the author's version of the work. It is posted here by permission of the author for personal use, not for redistribution. The definitive version was published in Abacus, 35 (3). pp. 268-285.doi:10.1111/1467-6281.00046
Faculty/School / Institute/Centre: Historic - Faculty of Business - Department of Accounting (Up to 31 Mar 2007)
Faculty/School / Institute/Centre: Historic - Faculty of Business - Department of Accounting (Up to 31 Mar 2007)
Date Deposited: 11 Oct 2007 01:09
Last Modified: 11 Aug 2021 05:12
Uncontrolled Keywords: asset revaluations; disclosure; private debt contracts
Fields of Research (2008): 15 Commerce, Management, Tourism and Services > 1501 Accounting, Auditing and Accountability > 150105 Management Accounting
15 Commerce, Management, Tourism and Services > 1503 Business and Management > 150310 Organisation and Management Theory
14 Economics > 1401 Economic Theory > 140104 Microeconomic Theory
Fields of Research (2020): 35 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 3501 Accounting, auditing and accountability > 350105 Management accounting
35 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 3507 Strategy, management and organisational behaviour > 350709 Organisation and management theory
38 ECONOMICS > 3803 Economic theory > 380304 Microeconomic theory
Socio-Economic Objectives (2008): E Expanding Knowledge > 97 Expanding Knowledge > 970115 Expanding Knowledge in Commerce, Management, Tourism and Services
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