Does Fixed Asset Revaluation Create Avenues for Financial Numbers Game? Evidence from a Developing Country

Journal of Asian Finance, Economics and Business (JAFEB) 7, no. 9 (2020): 293–304

12 Pages Posted: 18 Mar 2021

See all articles by Md. Tahidur Rahman

Md. Tahidur Rahman

Bangladesh Army International University of Science and Technology (BAIUST) - Department of Business Administration

Syed Zabid Hossain

University of Rajshahi - Department of Accounting and Information Systems

Abstract

[enter Abstract Body]The study reveals the extent of changes in selective financial numbers caused by fixed asset revaluation (FAR) and explores whether there was a management motive for playing the financial numbers game through using the FAR model. The data set consists of a sample of 142 listed companies purposively selected from 13 industries. The study found a significant impact of FAR on the net asset value (NAV), fixed asset intensity (FAI), and debt-to-equity ratio (DER). These findings are supported by the political cost and the debt covenant hypotheses. The study also observed a high growth of fixed assets by 9.5% to 14,603.8% resulting from FAR. More revealing is that FAR increased NAV in revaluer companies by an average of 427.20% as compared to 6.86% in non-revaluer companies. Even some companies with negative NAV took resort on FAR to show positive NAV. Besides, revaluer companies managed to reduce their DER by 70.45% as opposed to an increase of 8.45% in non-revaluer companies. Hence, the study concludes that most of the publicly-listed companies are involved in financial numbers game by the use of the FAR model. To build confidence among investors, companies should practice FAR rightly and disclose related information to help reduce information asymmetry.

Keywords: Fixed Asset Revaluation, Financial Numbers Game, IAS 16, Value Relevance, International Valuation Standards

JEL Classification: G11, G12, G18, M41

Suggested Citation

Rahman, Md. Tahidur and Hossain, Syed Zabid, Does Fixed Asset Revaluation Create Avenues for Financial Numbers Game? Evidence from a Developing Country. Journal of Asian Finance, Economics and Business (JAFEB) 7, no. 9 (2020): 293–304, Available at SSRN: https://ssrn.com/abstract=3777730

Md. Tahidur Rahman (Contact Author)

Bangladesh Army International University of Science and Technology (BAIUST) - Department of Business Administration ( email )

Comilla Cantonment
Comilla, 3500
Bangladesh

Syed Zabid Hossain

University of Rajshahi - Department of Accounting and Information Systems ( email )

Zimbabwe
+8801718577481 (Phone)

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