Asset revaluations and debt contracting
Article
Article Title | Asset revaluations and debt contracting |
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ERA Journal ID | 19052 |
Article Category | Article |
Authors | |
Author | Cotter, Julie |
Journal Title | Abacus: a journal of accounting, finance and business studies |
Journal Citation | 35 (3), pp. 268-285 |
Number of Pages | 18 |
Year | 1999 |
Place of Publication | Oxford, United Kingdom |
ISSN | 0001-3072 |
1467-6281 | |
Digital Object Identifier (DOI) | https://doi.org/10.1111/1467-6281.00046 |
Web Address (URL) | https://onlinelibrary.wiley.com/doi/10.1111/1467-6281.00046 |
Abstract | The research question investigated is “Do managers of Australian firms use upward asset revaluations to reduce debt contracting costs?” Prior research, using sample periods from the 1970s and early 1980s, provides evidence that asset revaluations are used to reduce the costs of debt contracting (see Whittred and Chan, 1992; Brown, Izan and Loh, 1992; and Cotter and Zimmer, 1995). However, considerable changes to the institutional setting have occurred in the past decade. These institutional changes include increased regulation of asset revaluations and disclosures, changes in the macroeconomic environment, and changes in the Australian debt market. Particularly, there has been a shift in emphasis from public to private debt. The relationship between asset revaluations and debt contracting is examined in the current setting, using refined measures of contracting variables. Interestingly, the results of prior research do not replicate in the current setting. In order to further examine the potential impact of changes to the institutional setting, a series of interviews with Chief Financial Officers is undertaken. The conclusion drawn from this additional analysis is that the relatively closer relationship between firms and their bankers in the current institutional setting has caused many firms to choose footnote disclosure of undervalued assets in preference to recognising an upward asset revaluation in the balance sheet. |
Keywords | asset revaluations; disclosure; private debt contracts |
ANZSRC Field of Research 2020 | 350105. Management accounting |
350709. Organisation and management theory | |
380304. Microeconomic theory | |
Public Notes | File reproduced in accordance with the copyright policy of the publisher/author. |
Byline Affiliations | School of Accounting, Economics and Finance |
Event | 1998 Corporate Disclosure Summer School |
Event Details | 1998 Corporate Disclosure Summer School Event Date 1998 Event Location Sydney, Australia |
https://research.usq.edu.au/item/9y2z5/asset-revaluations-and-debt-contracting
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