A Study on the Usefulness of Asset Revaluation Information
Asian Tax Journal Vol. 1 No. 2 (2000), pp. 337-353
Abstract
This paper is focused on seemingly contradictory empirical results of prior research on the potential usefulness of asset revaluation data. Based on an equity valuation model which modified EBO model by Ohlson(1995). Kim(1997) reported significant explanatory power of asset revaluation data for stock prices. Baek & Song(2000), however, reported that there was no significant relationship between asset revaluation data and stock prices. The purpose of this study is to provide reasons for these seemingly contradictory empirical results. To reconcile this difference, we conjecture that these contradictory results may be due to different models used to describe asset valuation process. Given the elegance of equity valuation model and clean empirical evidence of Kim(1997), we first try to replicate his result, using different sample period. Like Baek & Song(2000), however, we find no significant relationship between asset revaluation data and stock prices. This finding may result from different sample periods to examine the relationship between asset revaluation data and stock prices. But this explanation seems unreasonable. To find satisfactory explanation, we made another conjecture that there may be erosion of explanatory power over time. To investigate into the possibility of erosion, we divide our sample of 1998 firms into two parts. One group consists of firms that reevaluated their asset in 1998. The other consists of firms that had reevaluated their asset before 1998 and had considerable depreciation on that reevaluated asset. Then, we conduct empirical analysis similar to Kim(1997) on these two groups and again find contradictory results. This evidence suggests the possibility of erosion of explanatory power over time.
Keywords
- Asset Revaluation
- Valuation Model
- Depreciation
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