Fixed Asset Revaluation and Equity Depletion in the UK

WP 98/005

Posted: 19 Apr 1998  

Y.C. Lin

Lancaster University

Ken V. Peasnell

Lancaster University - Department of Accounting and Finance

Abstract

UK GAAP allows the write-off of purchased goodwill directly to reserves, resulting in the widespread depletion of book equity. Companies are also permitted to revalue fixed assets at management's discretion. This study examines whether revaluations are associated with the depletion of book equity and with other costly contracting explanations identified in prior research. Our results provide strong support for the equity depletion hypothesis, both with regard to the decision to revalue and the timing of the revaluations. Other factors identified in prior research (indebtedness, liquidity, market-to-book, size, fixed asset intensity) are also consistently associated with revaluation.

JEL Classification: M41, M44

Suggested Citation

Lin, Y.C. and Peasnell, Ken V., Fixed Asset Revaluation and Equity Depletion in the UK. WP 98/005. Available at SSRN: https://ssrn.com/abstract=77468

Y.C. Lin

Lancaster University

The Management School
Lancaster LA1 4YX
United Kingdom

Kenneth V. Peasnell (Contact Author)

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom
+44 1524 593631 (Phone)
+44 1524 847321 (Fax)

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