Does fixed asset revaluation build trust between management and investors?

Abstract

In this paper, we examine whether fixed asset revaluation has an impact on the timeliness and relevance of information disclosed in financial reporting. Using firms listed in the Korea Stock Exchange market during 2007-2017, this study investigates the change in transparency of the information disclosure environment as proxied by stock price crash risk. We find that, on average, fixed asset revaluation has a positive effect on sustainability by improving timeliness and relevance of disclosed information, thereby decreasing stock price crash risk. In contrast, firms with unhealthy financial conditions and a high degree of information asymmetry show an increase in crash likelihood after fixed asset revaluation. These findings suggest that the relationship between fixed asset revaluation and stock price cash risk is dependent upon management's motivation for honesty during the revaluation process.