ASSET REVALUATIONS UNDER INTERNATIONAL ACCOUNTING STANDARD 16: EVIDENCE FROM KOREA

G. Hwan Shin
Veronda F. Willis
The University of Texas at Tyler
ABSTRACT
In response to the issuance of International Accounting Standard 16, this paper studies
301 Korean firms during the early adoption period to investigate the motivation behind asset
revaluations. This study tests two competing hypotheses, the information cost hypothesis and the
fair value hypothesis, which may motivate managers to revalue fixed assets. Consistent with the
fair value hypothesis, the results show that the relation between revaluation announcements and
wealth effects is stronger for firms with less information costs and lower firm risk. The results also
indicate positive and significant wealth effects from firms carrying foreign currency debt, which
are generally subject to debt covenant requirements. It was found that this significance is driven
by firms with lower information costs. Overall, the results are consistent with the fair value
hypothesis.