Revaluations of Fixed Assets and Future Firm Performance: Evidence from the U.K.

Posted: 27 Feb 1998

See all articles by David Aboody

David Aboody

University of California, Los Angeles (UCLA) - Accounting Area

Mary E. Barth

Stanford University - Graduate School of Business

Ron Kasznik

Stanford Graduate School of Business

Date Written: February 1998

Abstract

We find, as predicted, that upward revaluations of fixed assets by U.K. firms are significantly positively related to future firm performance. Also, current year revaluations (revaluation balances) are significantly positively related to annual returns (prices), indicating revaluations reflect asset value changes. Relations between revaluations and future performance and prices are weaker for higher debt-to- equity ratio firms, indicating motivation affects how revaluations reflect fundamentals. The relations also are weaker for cross-listed firms. Revaluations after a decline in real estate values and a discretion-reducing accounting proposal are less strongly associated with future performance and returns. Downward revaluations are significantly positively related to returns, but small (large) downward revaluations are insignificantly (significantly negatively) related to future performance.

JEL Classification: M41, M44, G12

Suggested Citation

Aboody, David and Barth, Mary E. and Kasznik, Ron, Revaluations of Fixed Assets and Future Firm Performance: Evidence from the U.K. (February 1998). Available at SSRN: https://ssrn.com/abstract=62901

David Aboody (Contact Author)

University of California, Los Angeles (UCLA) - Accounting Area ( email )

D410 Anderson Complex
Los Angeles, CA 90095-1481
United States
310-825-3393 (Phone)
310-267-2193 (Fax)

Mary E. Barth

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-9040 (Phone)
650-725-0468 (Fax)

Ron Kasznik

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-725-9740 (Phone)
650-725-6152 (Fax)

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