Asset revaluations and assessment of borrowing capacity

Article

Cotter, Julie and Zimmer, Ian. 1995. "Asset revaluations and assessment of borrowing capacity." Abacus: a journal of accounting, finance and business studies. 31 (2), pp. 136-151.

Article Title	Asset revaluations and assessment of borrowing capacity
ERA Journal ID	19052
Article Category	Article
Authors	Cotter, Julie (Author) and Zimmer, Ian (Author)
Journal Title	Abacus: a journal of accounting, finance and business studies
Journal Citation	31 (2), pp. 136-151
Number of Pages	16
Year	1995
Place of Publication	Melbourne, Australia
ISSN	0001-3072
	1467-6281
Abstract	Prior research has found support for contracting, political cost and information asymmetry explanations for managements' decision to revalue non-current assets. This study proposes that asset revaluations occur to signal available borrowing capacity via an increase in collateral values at the time of increases in secured debt and that the economic benefits associated with an asset revaluation will be greatest for firms when they are experiencing times of declining cash flows from operations. Results imply that firms that have undertaken an asset revaluation are more likely to be experiencing declining cash flows from operations than firms that have not revalued. This study also investigates whether the incidence of valuations coincides with increases in levels of secured borrowings due to lenders' demands for current values of assets offered as collateral. The evidence indicates that firms are more likely to record an asset revaluation if they have increased their secured borrowings, and that most non-year-end revaluations emanate directly from contracting with lenders.
Keywords	valuation; assets; borrowing; liquidity
ANZSRC Field of Research 2020	350103. Financial accounting
	350204. Financial institutions (incl. banking)
	380304. Microeconomic theory
Public Notes	Files associated with this item cannot be displayed due to copyright restrictions.
Byline Affiliations	Faculty of Business
	University of Queensland
Institution of Origin	University of Southern Queensland

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