Why Do Some Firms Recognize Whereas Others Only Disclose Asset Revaluations?

31 Pages Posted: 26 Nov 1999

See all articles by Julie Cotter

Julie Cotter

University of Southern Queensland

Ian Zimmer

University of Queensland - Business School

Date Written: October 1999

Abstract

Australian GAAP requires firms to either disclose or recognize the current values of property in their financial statements. We investigate why managers of some firms choose to recognize revaluation increments in their financial statements while others choose simply to disclose. We propose that the propensity to recognize is related to the degree of management certainty that the value increase will be realized in future cash flows. In support of this proposition, we find that firms recognizing a revaluation increment (a) tend to have assets that are more general than specific, and (b) are more likely to have subsequent increases in operating performance. Our results indicate that, for asset revaluations at least, disclosure and recognition are different in terms of the signal that they convey about the underlying reliability of the measure.

JEL Classification: M41, M44, M45, G12

Suggested Citation

Cotter, Julie and Zimmer, Ian, Why Do Some Firms Recognize Whereas Others Only Disclose Asset Revaluations? (October 1999). Available at SSRN: https://ssrn.com/abstract=191448 or http://dx.doi.org/10.2139/ssrn.191448

Julie Cotter (Contact Author)

University of Southern Queensland ( email )

Australian Centre for Sustainable Business and Dev
Toowoomba, 4350
Australia
+61 7 4631 2916 (Phone)
+61 7 4631 1770 (Fax)

HOME PAGE: http://www.usq.edu.au/users/cotter/

Ian Zimmer

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia
+61 7 3365 6775 (Phone)
+61 7 3365 7333 (Fax)

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