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Demand for Fair Value Accounting: The Case of Asset Revaluations In Private Versus Public Firms

SSRN Electronic Journal
2017
  • 4
    Citations
  • 3,511
    Usage
  • 3
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    4
    • Citation Indexes
      4
  • Usage
    3,511
    • Abstract Views
      3,061
    • Downloads
      450
  • Captures
    3
  • Ratings
    • Download Rank
      129,049

Article Description

When the fair value accounting (FVA) option for property, plant, and equipment was introduced in the midst of the global financial crisis, a significant proportion of Korean firms elected FVA. We attribute this unusual boom of asset revaluations to the nation’s culture of government intervention and civilian compliance, which was particularly espoused during this period of financial turmoil, and a foreseeable option to switch back to historical cost accounting. We find that among those firms whose debt-to-equity ratios are low, public firms opt for the FVA option more often than private firms, suggesting that the need to communicate fair value information with diversified equity holders is more important than the need to do so with creditors. In contrast, among those firms whose debt-to-equity ratios are high enough to call such unfavorable dispositions as new debt freezes and regulators’ monitoring, we find no difference in the FVA choice between private and public firms. These findings imply that during the global financial crisis, private firms that rely heavily on debt financing have a strong incentive to utilize FVA to comply with government guidelines for the debt-to-equity ratio and to ease a potential hold-up problem by influential creditors.

Bibliographic Details

Tae H. Choi; Jinhan Pae; Choong-Yuel Yoo

Elsevier BV

Asset revaluation; Policy; Private firms; IFRS; Early adoption

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