Reliability of Asset Revaluations: The Impact of Appraiser Independence

Posted: 31 Mar 2003

See all articles by Julie Cotter

Julie Cotter

University of Southern Queensland

Scott A. Richardson

AQR Capital Management, LLC; London Business School


In this paper we examine whether there are differences in the reliability of asset revaluations made by boards of directors versus independent (external) appraisers. We use a sample of recognized Australian asset revaluations. As a first step we examine the determinants of the choice between director-based revaluations and those undertaken by independent appraisers. We find that independent appraisers are more likely to be used for revaluations of land and buildings and directors are more likely for investments, plant and equipment and identifiable intangibles. We interpret this as evidence of firms harnessing directors' knowledge of asset specificities. We also find that firms with less independent boards are more likely to use independent appraisers. We interpret this as evidence of substitutability between governance mechanisms.

As for differences in reliability, we find that revaluations of plant and equipment that are made by independent appraisers are more reliable than those by directors. However, we are unable to detect a difference for other classes of non-current assets. We define reliability in terms of ex-post adjustments of recognized value increases. Reliability is determined by an examination of the extent to which upward revaluations are subsequently reversed.

Keywords: asset revaluations, corporate governance, reliability

JEL Classification: G34, M41, M49

Suggested Citation

Cotter, Julie and Richardson, Scott Anthony, Reliability of Asset Revaluations: The Impact of Appraiser Independence. Review of Accounting Studies, Vol. 7, No. 4, pp. 435-457, December 2002. Available at SSRN:

Julie Cotter

University of Southern Queensland ( email )

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


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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