Does Credible Mean Reliable? The Case of Asset Revaluations

36 Pages Posted: 11 Dec 1999

See all articles by Julie Cotter

Julie Cotter

University of Southern Queensland

Scott A. Richardson

AQR Capital Management, LLC; London Business School

Date Written: October 1999

Abstract

In this paper we examine whether the utilization of independent valuers provides a credible signal about the underlying reliability of upward asset revaluations. A sample of recognized Australian asset revaluations is used to compare the reliability of independent and director based revaluations of non-current assets. Reliability is defined in terms of ex-post adjustments of recognized value increases, and is determined by an examination of the extent to which upward revaluations are subsequently reversed. Univariate results provide evidence that independent revaluations are more reliable than directors? revaluations. Further, after controlling for opportunistic incentives to revalue, the strength of corporate governance and macroeconomic conditions we find that independent revaluations are more reliable than directors? revaluations over the three years following the revaluations. While the employment of high quality (brand name) valuers may be perceived to add additional credibility to the revaluation, we find that reliability is not related to valuer quality.

JEL Classification: M41, M44

Suggested Citation

Cotter, Julie and Richardson, Scott Anthony, Does Credible Mean Reliable? The Case of Asset Revaluations (October 1999). Available at SSRN: https://ssrn.com/abstract=194052 or http://dx.doi.org/10.2139/ssrn.194052

Julie Cotter

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/

Scott Anthony Richardson (Contact Author)

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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