JAR Revalued Tangibles and Intangible Assets Association With Share Prices and Non Market Based Value Estimates PDF

Accounting Research Center, Booth School of Business, University of Chicago
Revalued Financial, Tangible, and Intangible Assets: Associations with Share Prices and
Non-Market-Based Value Estimates
Author(s): Mary E. Barth and Greg Clinch
Source: Journal of Accounting Research, Vol. 36, Studies on Enhancing the Financial Reporting
Model (1998), pp. 199-233
Published by: Wiley on behalf of Accounting Research Center, Booth School of Business,
University of Chicago
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Journal of Accounting Research

Vol. 36 Supplement 1998
Printedin US.A.
Revalued Financial, Tangible,

and Intangible Assets:
Associations with Share Prices and
Non-Market-Based Value Estimates
MARY
E.
BARTH*
AND
GREG
CLINCHt
1. Introduction
This studyinvestigateswhetherrelevance,reliability,and timelinessof
Australianasset revaluationsdifferacross typesof assets, including investments,property,plant and equipment, and intangibles.We also investigatewhether theydifferif the valuation amount is determined by
the firm'sBoard of Directorsor an independent appraiser,formore versus less timelyvaluations, and for revalued amounts that are above or
below historicalcost.1We base our inferenceson the associationbetween
*Stanford University; tAustralian Graduate School of Management. We appreciate
helpful comments and suggestions by workshop participants at the 1998 Journal ofAccounting Research Conference, the NYU Intangibles Research Conference, especially discussant
Jon Low, Massey University, the University of Sydney, the University of Tasmania, the 1997
Australian Graduate School of Management Finance and Accounting Research Camp, and
the 1997 American Accounting Association Financial Accounting and Reporting Section
conference, especially discussants Mark Lang and Jim Leisenring, and an anonymous reviewer. We also appreciate the research assistance of Kazbi Kothavala and Kerry Pattenden and funding by the Class of 1969 Faculty Fellowship and Financial Research
Initiative of the Stanford University Graduate School of Business, and New York University's Leonard N. Stern School of Business. We also thank IIBIEIS for permitting use of
their analyst forecast data and New York University's Leonard N. Stern School of Business
for enabling access to the IIBIEIS data.
1 Throughout, we use the term "revaluations" to refer to recognized revalued amounts
associated with assets that have been revalued. We use the phrase "current-year revaluations" to refer to revaluations made in the current year.
199
Copyright ?, Institute of Professional Accounting,
1999
200
ENHANCING
THE
FINANCIAL
REPORTING
MODEL:
1998
the recognized amountsforvarious categoriesof revalued assets of Australian firmsand share prices and a non-market-basedestimateof firm
value, which is based on analysts'earningsforecasts.
Our evidence bears directlyon revaluationpracticesunder Australian
GAAP However,our evidence also bears indirectlyon currentissues facing the Financial Accounting Standards Board (FASB) in the United
States. U.S. GAAPrequires disclosure, and the FASB is considering requiringrecognition,of fairvalues of all financialinstruments.Currently,
there is no U.S. proposal to disclose or recognize nonfinancialassets at
fairvalue (FASB [1991; 1996]). Yet,fairvalues of all assets likelyare relevant to financial statementusers. One reason the FASB distinguishes
financialand nonfinancialassets is the belief thatfairvalues are not reliably estimable for nonfinancialassets, especially intangible assets and
tangible assetswhose value in use varies fromexit or entryvalue (Barth
and Landsman [1995]). Because Australian GAAPpermitsrevaluingall
long-livedassets at fairvalue (and manyAustralianfirmsdo so), examining Australianrevaluationsby asset class permitsus to testthis belief.
Also, Australian GAAPpermitsrevaluationsbased on independent appraisers'or directors'value estimates,which maydifferin reliability,and
does not require revaluations every year, possibly affectingrelevance
and timeliness.2We investigateall of these possibilities.
Although revaluationsof appreciated assets are discretionaryunder
Australian GAAP,revaluationsof impaired assets are required, as they
are under U.S. GAAP However, determiningwhethera long-termasset
is impaired and the amount of the impairmentrequires considerable
judgment.3 The most notable change that would result fromadopting
fairvalue accounting for long-livedassets under U.S. GAAPis recognition of such assets at amounts in excess of depreciated historicalcost.
Australianfirmsaffordus an opportunityto provide evidence on thisdimension of the fairvalue accounting debate. Specifically,we investigate
whetherrevalued amounts in excess of historicalcost are value relevant
and investigatethe relationbetween share returnsand revaluationsthat
would not be permittedunder U.S. GAAp4
Our primaryfindingsare based on estimatingrelationsbetween share
price, or a firmvalue estimate based on analysts' earnings forecasts,
and operatingearnings,book value of equityminus the book values for
2 AustralianGAAPpermitsconsiderable discretionregardingasset revaluations,including whetherand when to revalue upward appreciated assets. Thus, effectsof discretion
can affectour inferences.Althoughwe interpretour findingswiththispossibilityin mind,
we leave to futureresearch a comprehensivestudyof the effectsof discretion.
3 Because of the diversemeasurementand disclosure practicesrelatingto asset impairStandardsNo. 121 (FASB [ 1995]) in
ofFinancial Accounting
ment, the FASB issued Statement
1995,whichclarifiesGAAPrelatingto impairmentof long-livedassets (see, e.g., SFASNo.121
BasisforConclusions).SFASNo. 121 became effectiveafterour sample period.
4 By the term"value relevant,"we mean thatthe amount has a significantrelationin the
predicted directionwithshare prices or the non-market-basedestimateof firmvalue.
REVALUED
FINANCIAL,
TANGIBLE,
AND
INTANGIBLE
ASSETS
201
the asset classeswe investigateseparately,and amountsrecognized at cost

and at revalued amounts for those asset classes. The sample comprises
350 publiclytraded Australianfirmsfor 1991 through 1995: the largest
100 firmsand a random sample of 250 smaller firms.Because the relationswe estimatelikelydifferacross industries,we presentseparate findings forfirmsin the nonfinancial,mining,and financialindustries.
Regardingasset class,we findthat,as expected based on priorresearch
on fairvalues of financial assets, revalued investmentsare consistently
associated withshare prices,except forinvestmentsof nonsignificantly
financial firmsin associated companies. We also find that revalued intangible assets are consistentlysignificantlypositivelyassociated with
share prices,contradictingthe viewthatsuch estimatesare unreliable. In
fact,there is littleevidence to indicate that investorsdistinguishrecognized cost and revalued amounts forinvestmentsand intangibleassets.5
The findingsregardingrevaluedproperty,plant,and equipment (PPE)
are less consistent.We find that revalued aggregate PPE is significantly
positivelyassociated with share prices for firmsin all three industries.
However, whereas revalued plant and equipment is value relevant for
miningfirms,it is insignificantly
related to share prices fornonfinancial
firmsand significantlynegativelyrelated to share prices for financial
firms.Revalued propertyis not significantly
associated withshare prices
for any industry,although it is for nonbank financialfirms.
Regarding source of revaluation value estimates,we find little evidence indicatingindependent appraiser-basedrevaluationamounts are
value relevantmore often than director-basedamounts. These findings
suggestthat the relevance of directors'privateinformationabout asset
on the esvalues can outweighpotentialeffectsof directors'self-interest
timates.Regardingage of revaluations,we find thatrevalued intangible
assets are value relevantregardlessof age, and thatinvestmentrevaluations fromother than the currentyear are value relevantfor nonfinancial firms.Surprisingly,
revaluationsof PPE more than threeyearsold are
value relevantmore consistentlythan more timelyrevaluations.Taken
together,these findingssuggestthat lack of revaluationtimelinessdoes
not eliminate the revalued amounts' relevance.
associated with share
Finding that revalued amounts are significantly
As
prices suggeststheyhave implicationsfor firms'futureprofitability.
Bernard [1993] suggests,we investigatethisdirectlyby estimatingthe relation between the revalued amounts and a non-market-basedestimate
of firmvalue, based on the presentvalue of analysts'forecastsof future
earnings. Findings using this firmvalue estimategenerallycorroborate
5 Under Australian GAAP, investments are not recognized based on the equity method.
Thus, investments that have not been revalued are recognized at cost. Our analysis does
not consider the disclosed equity-method-based amounts because the disclosures do not
identify whether they relate to revalued investments.
202
MARY E. BARTH
AND
GREG
CLINCH
thoseusing shareprices,increasingour confidencethatrevaluedamounts

reflectasset value estimates.
We next estimatethe relationbetween share returnsand current-year
revaluations,partitionedby whetherthe revaluationaffectsnet income
or is recognized directlyin shareholders' equity.We find thataggregate
revaluations recognized directlyin earnings are significantly
positively
related to share returnsfor nonfinancialfirms,but those recognized in
equityare not. The reverseis trueforminingand financialfirms.Further
analysesreveal thatthe positiveearningsrelationprimarilyis attributable
to PPE and intangibleasset revaluations,whereas the positiveequity relation primarilyis attributableto investments.We findlittledifferencein
the relation with returnsfor director-or independent appraiser-based
revaluations.
Relating to amounts not observed under U.S. GAAP,we firstestimate
the price specificationsafterpartitioningrevalued asset amounts into
those statedabove cost (not permittedunder U.S. GAAP) and those stated
below cost (required under U.S. GAAP). We find revalued amounts for
investmentsand PPE generallyare value relevantregardlessof thispartitioning;data limitationspreclude conducting this analysisfor intangible assets.Second, we findthatupwardrevaluationsrecognized in equity
are positivelyrelated to returns,although not significantly
so for nonfinancialfirms.However,revaluationsrecognized in earnings,regardless
of sign,are negativelyassociatedwithreturns,withthe exceptionof downward revaluationsfor nonfinancialfirms.Downward revaluationsrecognized in earnings,i.e., those required byAustralianGAAPand U.S. GAAP,
are significantly
positivelyrelated to returnsfornonfinancialfirms.Our
findingthatupward revaluationsrecognized in earningshave a negative
relation with returnssuggeststhe marketdiscounts discretionaryearnings increases, because upward revaluations are discretionary.We find
littledifferencebetween the returnsfindingsfordirector-and independent appraiser-basedrevaluations.
Finally,because our sample comprisesfirmsof disparate size, we also
estimatethe price and returnsregressionsseparatelyfor two size-partitioned samples. We findlittledifferencebetween them for revalued investmentsand intangible assets, but revalued PPE is more consistently
value relevantfor smallernonfinancialand financialfirms.Also, revaluations by smaller firmsare somewhatmore consistentlysignificantly
aswith
returns
than
those
of
firms.
sociated
larger
Section 2 describes AustralianGAAPfor revaluationsand reviewsrelated research. Section 3 develops the estimationequations and section
4 describes the data and descriptivestatistics.Sections 5 and 6 present
findingsfromthe price and non-market-basedvalue estimateregressions
and returnsspecifications,respectively.Section 7 presentsfindingsfrom
analyses aimed at differencesbetween upward and downwardrevaluations,and section 8 presentsfindingsfromadditional analyses,including
those fromsize-partitionedsamples. Section 9 provides a summaryand
concluding remarks.
REVALUED
FINANCIAL,
TANGIBLE,
AND INTANGIBLE
ASSETS
203
2. AustralianGAAPforRevaluationsand RelatedResearch
2.1 AUSTRALIAN
GAAP FOR REVALUATIONS
Australian GAAP (ASRB 1010 [1987], as amended by AASB 1010

[1993]) permitsfirmsto revalue noncurrentassets upwardwhen the asset's recoverableamount exceeds its carryingamount and requires firms
to revalue noncurrent assets downward when the asset's recoverable
amountfallsbelow itscarryingamount.The standarddefinesrecoverable
amount as the net amount expected to be recovered throughnet cash
inflowsarisingfromthe asset's continued use and subsequent disposal.6
Assetrevaluationincrementscan be recognized onlyif all assets in an
asset class are revalued, i.e., selectiveupward revaluationsare not permitted.However,revaluationdecrements,when required, are permitted
for individual assets. Revaluation incrementsare credited directlyto an
equity asset revaluation reserve,unless the incrementreversesa previous decrementfor the same class of assets thatwas recognized in earnings. In that case, the incrementis recognized in earningsto the extent
of the previous decrementrecognized in earnings.Analogously,revaluation decrementsare recognized as expenses unless the decrement reverses an existingprevious incrementfor the same class of assets that
was credited directlyto an equity revaluationreserve. In that case, the
decrementis recognized as an adjustmentto the revaluationreserve,to
the extent of the previous incrementrecognized in the revaluationreserve.7The standardapplies to all noncurrentassetsother than inventories or foreign currencymonetaryassets, except that goodwill can be
revalued only downward.
Under Australian GAAP,required disclosures for revalued assets include, for each class of revalued asset, the year of the revaluationand
whetherthe carryingamounts were determinedby an independent valuation. For revaluationsbased on independent valuations,the revalued
amount equals the amount to whichthe independentvaluer certifiesand
the valuer's name is disclosed in the annual report.Disclosures also include, by class of asset, the amount before accumulated depreciation of
6 Recoverable amount can be calculated based on the present value or nominal value of
these cash flows, at the discretion of management, and the calculation method must be
disclosed. Approximately 30% of our sample firms discount future cash flows in determining recoverable amount. For upward revaluations, the revalued carrying amount need not
equal, but must not exceed, recoverable amount, although it is rare for upward revaluations to be based on recoverable amount. In contrast, downward revaluations must be to
recoverable amount.
7When depreciable assets are revalued, any balances in accumulated depreciation are
credited to the asset account to which they relate and subsequent depreciation is based on
the revalued amount. As revalued assets are depreciated, depreciation of the revalued
amount is considered realized. Any gain or loss on revalued assets is the difference between
the carrying amount of the asset at disposition and the proceeds. Thus, the gain or loss included in earnings does not include any unrealized revaluation increment that previously
was recognized directly in the equity revaluation reserve. See also Easton, Eddey, and Harris [1993] for further discussion of Australian GAAP for revaluations.
204
MARY E. BARTH
AND
GREG
CLINCH
assets carried at revalued amounts and at cost. We exploit these disclosures to provide evidence on value relevance of revalued assets by class
of asset and by source and age of revaluation.
2.2
RELATED
RESEARCH
2.2.1. AssetRevaluations. This studydirectlycontributesto the literature investigatingasset revaluationsof Australianand U.K. firms.Some
studies(e.g.,Amir,Harris,andVenuti [1993] and Barthand Clinch [1996])
investigateasset revaluationsusing reconciliationsbetween domesticand
U.S. GAAPearningsand shareholders' equity,which the U.S. Securities
and Exchange Commission(SEC) requiresforforeignfirmstradingequity
shares in U.S. markets.Althoughthe reconciliationspermitdirect comparisons of cost and revalued amounts for the same assets,theydo not
permitinvestigating
disaggregatedassetrevaluations.Moreover,mostcrosslistedrevaluationfirmsare U.K. firms,whichgenerallyonlyrevalue PPE.
For a combined U.K. and Australiansample, Amir,Harris, and Venuti
[1993] find some evidence of value relevance for revaluation-related
reconcilingitems,whereasBarthand Clinch [1996] findthatneitherU.K.
nor Australianassetrevaluationsare positivelycorrelatedwithinformation
investorsuse in settingshare prices.
Other studies investigateasset revaluationsby firmsthat do not necessarilytrade shares in U.S. securitiesmarkets.InvestigatingAustralian
firms,Brown,Izan, and Loh [1992], Henderson and Goodwin [1992],
Whittredand Chan [1992], and Cotter [1997] focus on managements'
motivationsforrevaluingassets,whereasSharpe and Walker[1975], Brown
and Finn [1980], Standish and Ung [1982], and Emanuel [1989] investigate the impact of revaluationannouncements on share prices. InvestigatingU.K. firms,Aboody,Barth,and Kasznik [forthcoming]findthat
PPE revaluationshave predictivepower regardingfutureprofitability.
The most closely related studyis Easton, Eddey, and Harris [1993]
(henceforthEEH), whichinvestigatesvalue relevance of Australianasset
revaluations for 72 industrialfirmsfrom 1981 to 1990. EEH find that
aggregate revaluation reserve incrementshave significantexplanatory
power forreturnsover earningsand earningschanges, and thatthe level
of the aggregate revaluation reserve has significantexplanatorypower
forprice-to-bookratios.They also findthatincludingthe revaluationreserve in book value resultsin price-to-bookratioscloser to one and with
lower variance than those obtained when excluding the revaluationreserve. EEH interprettheirfindingsas indicatingasset revaluationshelp
align marketand book values of equity,although revaluationsare not
timely.Bernard [1993] notes that EEH's findingof value relevance for
revaluationsis particularlyinterestingbecause property,i.e., land and
buildings,is the primarytargetof revaluationsfor EEH's sample firms,
and the link between real estate values and operating cash flowsneed
not be strong.Not only are EEH unable to distinguishpropertyrevaluationsfromrevaluationsof other assets,but also share prices provide only
REVALUED
FINANCIAL,
TANGIBLE,
AND
INTANGIBLE
ASSETS
205
an indirect measure of expected futureoperations. We provide direct

evidence on these twoissues by investigatingseparatelypropertyrevaluations and byinvestigatingthe associationbetweenrevaluationsand firm
value based on forecastsof futureearnings.
This studyextends EEH by partitioningassets into major asset classes
and, as Bernard [1993] suggests,by estimatingthe relation between revalued amountsand an estimateof firmvalue based on analysts'earnings
forecasts(Frankel and Lee [1996]). Also, we investigateseparatelynonfinancial,mining,and financialservicesfirms,provide evidence on value
relevance for three major classes of assets: investments,PPE, and intangibles, and subclasses withinthese three, and investigatewhether capital marketparticipantsinterpretdifferently
director-and independent
appraiser-determined
value estimatesand whetherthe age of revaluations
affectstheirvalue relevance.We also explore whethervalue relevance of
assetrevaluationsdiffersforrevaluedamountsabove and below historical
cost and investigatewhetherthe relation between returnsand revaluationsdiffersforrevaluationsinitiallyrecognized directlyin equityand in
earnings. Because our 1991-95 sample period includes growthand recession years,we investigateseparatelyupward and downwardrevaluations.Finally,we investigatedifferencesassociated withfirmsize, analyst
following,and assetturnoverin revaluations'value relevanceand relation
withreturns.8
2.2.2. FinancialAssets. Byinvestigating
thisstudy
revaluedinvestments,
also contributesto thefinancialassetsfairvalue literature(e.g., Landsman
[1986], Barth [1991], Barth,Beaver,and Landsman [1992], Barth [1994],
Bernard, Merton, and Palepu [1995], Barth, Beaver, and Landsman
[1996], Eccher, Ramesh, and Thiagarajan [1996], Nelson [1996], and
Venkatachalam [1996]). These studies' findingsindicate that fairvalue
estimatesare value relevantforat least some financialassets,particularly
banks' investmentsecurities,which are listed investments.The investmentsasset class we investigateis composed primarilyof associated company and listed investments.Also, we report evidence for three major
industrygroups,includingfinancialfirms.In Australiathe financialfirm
group includes four large banks, and a fewsmaller and regional banks,
plus nonbankingfinancialsectorfirms,so it is more diversethan the U.S.
bank samples in the cited studies.
2.2.3. NonfinancialAssets. This studyalso contributesto the literature investigatingasset value-related estimates for nonfinancial assets
of U.S. firms.Although the estimates these studies investigateare not
8Easton and Eddey [1997] extend EEH to 1991-93. They find that the revaluationreserveincrement(change in revaluationreserveincrement)individuallyprovidessignificant
explanatorypower for returnsincrementalto earnings and changes in earningsfor 1991
(1992). In 1993, the revaluationreserveincrementand change in revaluationreserveincrementtogetherprovidesignificantincrementalexplanatorypower.They also findthatin
1992 net increases and decreases to the revaluationreserveare value relevant,but in 1991
onlynet decreases are value relevant.
206
MARY E. BARTH
AND
GREG
CLINCH
estimatesof fairvalue per se, the estimateslikelyare more closelyrelated

to fairvalues than to historicalcosts.The studiesprovidemixed evidence
regardingthe estimates'value relevance.For example, Bell [1983], Magliolo [1986], and Harris and Ohlson [1987] present mixed findingsregarding the incremental explanatorypower of oil and gas disclosures
under SFASNo. 19 (FASB [ 1977]), whichone can viewas fairvalue disclosures.When investigatingcurrentcost and constantdollar disclosuresrelated to inventoryand PPE under SEASNo. 33 (FASB [1979]), Beaver and
Landsman [1983], Beaver and Ryan [1985], and Bernard and Ruland
[1987] findno evidence ofvalue relevanceof the currentcost or constant
dollar amounts incrementalto book values. Other studies (e.g., Bublitz,
Frecka, and McKeown [1985], Murdoch [1986], Haw and Lustgarten
[1988], Hopwood and Schafer [1989], and Lobo and Song [1989]) find
incrementalexplanatorypower for currentcosts in particularsettings.
One explanation these studiesofferforlack ofvalue relevanceis thatthe
disclosed amountscontain nontrivialestimationerror.
3. ResearchDesign
3.1 PRICE
REGRESSIONS
We seek to assess the value relevance of revaluationsas a recognition

basisforassets,wherevalue relevancerefersto the abilityof revaluedasset
amounts to reflectinformationrelevantto investors.We begin by using
share price as a summarymeasure of informationrelevantto investors
and investigatethe abilityof recognized financialstatementamounts to
explain thismeasure, based on (1).
Pit=
wo+wiBVEit+w2NIit+Oit
(1)
where P is share price of firmi at time t, BVE is book value of equity

per share, and NI is net operating income per share. We include BVE
and NI in (1) as summarymeasures of informationreflectedin financial statementaccounting numbers. We include w0 and (hit to capture
the portion of price unexplained by BVE and NI. EEH also use (1),
withoutthe intercept,as the basis for theirregressionequations. Equation (1) also is consistentwiththe theoreticalmodel in Ohlson [1995].
Book value of equity and earnings are the explanatoryvariables in
(1), yet we seek to determinewhetherrevalued assets' value relevance
varies across asset classes, source of value estimates,or age of revalued
amounts. To thisend, we partitionBVE as follows:
BVE _BV + INVEST COST + INVESTJREVAL+ PPE COST + PPE-REVAL
+ INTAN COST + INTAN-REVAL
(2)
where BV is book value of equity aftersubtractingrecognized amounts
related to investments(INVEST), property,plant,and equipment (PPE),
and intangible assets (INTAN); and -COST and JREVALdenote investments,property,plant,and equipment,or intangibleassetsrecognized at
REVALUED
FINANCIAL,
TANGIBLE,
AND
INTANGIBLE
ASSETS
207
cost or at revalued amounts.When investigatingsubclasses of assets and

the source or age of revaluations,we use alternativepartitionsof BVE.
Substituting(2) for BVE in (1), and estimatinga separate coefficient
for each variable in (2), resultsin our primaryregressionequation:
P = ao + aBV + a2NI + a3DISC + a4INVEST COST + a5INVESTLREVAL
+ a6PPE-COST + a7PPE-REVAL + a8INTAN-COST
+ agINTAN-REVAL+
(3)
where P is share price as of fiscal year-end.We also include an additional variable in (3), DISC, which representsvaluation incrementsor
decrements relating to investments,property,plant, and equipment,
and intangiblesdisclosed in footnotesbut not recognized in the financial statements.? is the regressionerrorterm.9All variables are deflated
by number of shares outstandingand firmand time subscriptsare suppressed.10We predict all coefficientsin (3) to be positive;a coefficient
indistinguishablefromzero indicates the associated variable is not value
relevant.Because (3) includes components of book value of equityand
net income, we cannot predictcoefficientmagnitudes (Ohlson [1995]).
However,we report testsof equality of various combinations of coefficients in (3) to testwhethercost or revalued amounts are priced by infromeach other or fromother assets.11
vestorsdifferently
3.2
NON-MARKET-BASED
FIRM VALUE
REGRESSIONS
Bernard [1993] suggestsusing benchmarksbased on estimatedfuture

to investigatewhetherrevalued asset amounts are
operatingprofitability
value relevant.Using such a benchmarkprovides evidence on whether
9 EEH also include revaluation increments in their price regressions. However, because
of severe multicollinearity, they report regression summary statistics from estimating equations that include only the aggregate revaluation reserve or the revaluation increments.
Thus, we include in (3) only asset revaluations, which is the analogue of EEH's revaluation
reserve variable. In section 6, we report findings relating to revaluation increments. Also,
one can interpret EEH's price regression as permitting the coefficient on current-year
revaluations, i.e., the revaluation increment, to differ from that on revaluations from prior
years, i.e., the aggregate revaluation reserve. In section 5.4, we permit the asset revaluation
coefficients to vary for three age groups, including the current year.
10 Deflation mitigates potential effects of scale on our inferences. Untabulated findings
reveal our inferences are insensitive to using book value of equity (as in EEH) or sales as
alternative deflators and estimating the equations in undeflated form, but including sales,
number of shares, or V defined below, as additional independent variables (Barth and
Kallapur [1996]). Our inferences also are unaffected by using prices in (3), analyst earnings forecasts in (4), and returns in (8) as of three months after year-end.
11These tests assume that within an asset class revalued and nonrevalued assets are
economically similar. Because upward revaluations are discretionary, revalued and nonrevalued assets could be economically different. To the extent they differ, our tests of
coefficient equality could lead to incorrect inferences regarding the characteristics of revaluations. However, we have no basis to predict whether such differences exist or, therefore, their effects on the coefficient estimates.
208
MARY E. BARTH
AND
GREG
CLINCH
the link between asset values and future operations is importantfor

value relevance. Thus, we estimateversionsof (3) where the dependent
variable is an estimateof firmvalue based on analysts'earningsforecasts:
V = bo + b1BV+ b2NI + b3DISC + b4INVESTCOST
+ b5INVEST-REVAL + b6PPE-COST + b7PPEREVAL
+ b8INTAN COST + bgINTAN-REVAL + u.
(4)
Variables other than V are as previouslydefined. Following Ohlson

[1995] and Frankeland Lee [1996], Vis based on the followingequation:
/(1 + r) + (FEt+2- rBVEt+
1i)/(r(1 + r))
Vt - BVEt+ (FEt+l - rBVEt)
(5)
whereFEt+i is the IIBIEIS median earningsforecastas of the end of the

currentfiscalyear,t,forfollowingyear,t + 1; FEt+2 is the IIBIES median
earningsforecastat year tforyear t + 2; and r is the discountrate,which
we assume equals 10%. BVEtis shareholders' equityat year t and BVEt+
is calculated using "clean surplus,"which requires a forecastof the year
t + 1 dividend. We use the year t dividend multipliedby the dividend
growthrate over the past fiveyears as the dividend forecast.Thus, V is
the present value of forecasted abnormal earnings for two years, plus
discounted abnormal earnings for the remaining years to infinity,assuming abnormal earningsfor the remainingyears equal year t + 2 abnormal earnings.We use analysts'forecastsfor twoyearsbecause KBI//S
typicallydoes not include forecasts beyond two years for Australian
firms.To the extent revaluationsof long-termassets affectforecastsof
earningsbeyond twoyears,our abilityto detect a significantrelation is
impaired.
Equation (5) simplifiesto:
Vt = FEt+21(r(1 + r)) + (dtgt)I(1 + r)
(6)
where gtis the time t dividend growthrate (Penman [1996]). Thus, V

reflectsthe presentvalue of analysts'expected futureearningsplus the
presentvalue of dividendsbetween time t and the earningsforecastperiod. Representing firmvalue as the present value of futureearnings
is standard in the valuation literature(see, e.g., Miller and Modigliani
[1966]). However, rather than basing the value estimate on, e.g., past
earningsas an estimateof futureearnings,Vis based on analysts'forecasts
of futureearnings.12
3.3
RETURNS
REGRESSIONS
Findings fromestimating (3) and (4) provide evidence on whether

revalued assets are value relevant,whether their implicitvaluation co12Because of the linkbetween Vand analysts'earningsforecasts,we reestimate(4) using
FEt1, and FEt+2as the dependent variable. Our inferencesare unaffected.Our inferences
from (4) also are unaffectedif price is included as an additional independent variable or
used as an alternativedeflator.
REVALUED
FINANCIAL,
TANGIBLE,
AND
INTANGIBLE
ASSETS
209
efficientsdifferfromthose of assets recognized at cost, and whetherestimationerrorin revalued amounts is sufficientto eliminate theirvalue
relevance. Because we cannot disaggregaterevalued amounts into their
cost and revaluationcomponents,we cannot establish the incremental
value of revalued amounts,given cost data. Also, we cannot distinguish
whethercost-based amounts are value relevantbecause theyare correlated withassets' values and/orwhetherrevalued amounts are value relevant because theyare correlatedwithassets' costs.
To providesome evidence on thisquestion and to investigatethe timeliness of currentrevaluations,we investigatewhether annual share returns are associated with current-yearrevaluations. As before, (1)
providesthe basis forthe estimatingequation. As in EEH, note that:
ABVE = NI-DIV+
RRI+ other
(7)
where ABVEis the change in book value of equity in year t,DIV is dividends, and RR! is revaluation reserve increment. That is, RH! is the
amount of upward or downward asset revaluation for the year recognized directlyin equity. otherrepresentschanges to equity other than
fromearnings,dividends,and incrementsto revaluationreserves.Thus,
first-differencing
(1), substituting(7) for ABVE,and deflatingall variables by beginning-of-year
price yields:
RET = ko + kjNI+ k2ANI+ k3RRJ+v
(8)
where RET is raw return,i.e., Pt + DIVt - Pt-, / Pt-,, v includes other,

and ko is wOt- wOt-l.A denotes annual change.
As in (3) and (4), we disaggregateRRlJintorevaluationincrementsby
asset class. Also, recall thatsome revaluations,e.g., write-downsof assets
not previouslywrittenup, are recognized in net income, RRI2PL.Thus,
we also partitionearnings into operating earnings before revaluations
and RRIPL by asset class, and estimateversionsof the followingreturns
equation:
RET = co + cjNI + c2ANI+ c3INESTLRRI + c4PPELRR
+ c5INTANJRI + c6INVESTJWJPL+ c7PPERRIPL
+ c8INTANPRRIPL + o
(9)
where RET is the firm's 12-month raw share return ending at fiscal
year-end,RRI denotes the revaluationreserveincrementforyear t,and
RRIPL denotes revaluationsrecognized in earnings. Other variables are
as defined previously.13
13 EEH include ARRI in their returns specification, although, as with their price regressions, they report findings only for regressions that include either RRJ or ARRI, but not
both. Similarly, we do not include ARRI, or ARRJPL, in (8). Interpretation of findings from
regressions that include both variables also is confounded because most firms do not revalue assets every year. For our sample firms, on average, each year 36% (31%) revalued
assets through equity (earnings). Thus, for many firms, in a revaluation year ARRJequals
RRI and in the year following a revaluation, ARPJ equals -RR1t-1.
210
MARY E. BARTH
AND
GREG
CLINCH
4. Data and DescriptiveStatistics

4.1
SAMPLE
FIRMS
AND DATA
The sample is composed of the 100 largest companies listed on the

AustralianStock Exchange (ASX), as measured bymarketvalue of equity
as of June 30, 1996, and a random sample of 250 firmsselected fromthe
remainingAustralianfirmstraded on the ASX withmarketvalue of equitygreater than A$10 million. Seven hundred seventy-sixof the 1,171
companies withJune 30, 1996 ASX share prices meet our marketcapitalization criterion,indicating that one-third of traded Australian firms
have marketvalue of equity less than A$10 million. Nonetheless, our
sample firmsrepresent81% of the totalmarketcapitalizationof the ASX
domestic stocks.We exclude 18 and 3 foreign-domiciledfirmsfromthe
top 100 and random sample firms,respectively,
because theydo not follow Australian GAAP We include a firmin our sample for the years it
has data the equations require. We select the 100 largestfirmsto facilitate comparisons with EEH and extend the sample to smaller firmsto
facilitategeneralizationof our findings.The sample period is 1991-95.
We obtain financialstatementdata fromfirms'annual reportsto shareholdersand marketdata fromtheAustralianGraduateSchool of Management'sCentreforResearchin Finance share price file.We obtain analysts'
earningsforecastsfromI/BIEIS.
4.2
DESCRIPTIVE
STATISTICS
Table 1, panel A, presentsindustryand calendar year breakdownsof

the sample firms.It revealsthatno single industrydominatesthe sample,
except gold miningfirms,which comprisea large fractionof the mining
industrysample. We presentseparate findingsforfirmsin the nonfinancial, mining,and financialindustriesbecause the relationbetween share
prices, or the non-market-basedmeasure of firmvalue, and revalued
amountslikelydiffersacross industries.Data limitationspreclude us from
using more refinedindustryclassifications.Because we select our sample
based on 1996 marketvalue of equity and do not require firmsto have
available data for all sample years,panel A also reveals that the sample
size increases over time.
Table 1, panel B, revealssmallvariationsin marketcapitalizationacross
industriesbut large variationsin total assets and sales. Financial firms,
on average, have large total assets, with a skewed distribution,reflecting their typical asset structureand the presence of some firmswith
extremelylarge total assets. Mining firms,on average, have the smallest
sales, partiallyreflectingthe fact that some mining firmsare in the exploration stage and thus have large assets and/or marketcapitalization
but small sales. These industrydifferencesin accountingamountsreflect
some reasons motivatingour separate industryanalyses.
Table 2 presents descriptivestatisticsfor market-to-bookratios and
the regressionvariables, and the number of nonzero observationsfor
TABLE
1
Descriptive
Statistics
RelatingtoSampleofPubliclyTradedAustralianFirmsfrom1991 to 1995
Panel A: Industryand Calendar-YearSample Composition
Industry
Total
1995 1994 1993 1992 1991 Observations Companies
Nonfinancial
Developers and Contractors
Building Materials
Alcohol and Tobacco
Food and Household Goods
Chemicals
Engineering
Paper and Packaging
Retail
Transport
Media
Miscellaneous Services
Miscellaneous Industrials
DiversifiedIndustrials
Tourismand Leisure
Total Nonfinancial
7
8
5
6
3
3
2
5
5
12
13
13
6
8
96
6
6
4
6
2
3
2
3
3
9
6
9
6
6
71
7
7
4
5
2
3
2
5
3
8
9
8
6
5
74
6
7
3
5
2
2
1
4
2
7
8
9
5
4
65
4
6
2
4
2
2
1
3
2
3
8
8
5
3
53
30
34
18
26
11
13
8
20
15
39
44
47
28
26
359
8
8
5
6
3
3
2
6
5
12
14
14
6
8
100
Mining
Gold
Other Metals
Solid Fuels
Oil and Gas
DiversifiedResources
Total Mining
39
15
2
11
2
69
25
13
3
12
2
55
27
12
3
13
2
57
26
10
3
13
2
54
24
7
2
13
1
47
141
57
13
62
9
282
42
15
3
14
2
76
Financial
Banks
8
Insurance
5
4
EntrepreneurialInvestors
Investmentand Financial Services
24
15
PropertyTrusts
56
Total Financial
Total
221
8
5
2
17
13
45
171
8
4
3
19
9
43
174
8
2
3
16
5
34
153
7
0
1
14
5
27
127
39
16
13
90
47
205
846
8
5
4
26
15
58
234
Panel B: Size of Sample Firms

Variable
MarketCapitalization
Nonfinancial
Mining
Financial
Mean
Median
1,085.00
1,301.50
1,171.40
256.80
133.90
194.60
1,926.50
4,343.50
3,046.30
Total Assets
Nonfinancial
Mining
Financial
1,439.80
1,026.90
9,243.60
228.00
90.40
280.10
2,826.30
3,640.00
29,943.20
Sales
Nonfinancial
Mining
Financial
1,439.80
560.40
761.20
228.00
30.60
45.80
2,826.30
2,154.20
2,104.70
Standard Deviation
Number of Companies
Nonfinancial
100
76
Mining
58
Financial
Marketcapitalization
is as ofJune30, 1996;all othervariablesareas of thelatestyearthefirmappearsin the
sample.
212
MARY E. BARTH
AND
GREG
CLINCH
P
NI BVV
DISC
INVEST
COST
REVAL
PPE
COST
REVAL
Market-to-Book
DIRECTOJLall
DIRECTOR-all
DIRECTOR-OLD
DIRECTORLCURR
DIRECTORLCURR
DIRECTOILPREV2
DIRECTORLPREV2
INDEPENDENT-all
INDEPENDENT-OLD
INDEPENDENT-CURR
INDEPENDENTJPREV2
Variable
Ratio
0.42
0.47 1.98 3.35
2.85
1.45
0.34
2.40
0.32
0.25 0.43 0.15
3.61
0.08
2.11Mean
2.43
0.24
0.20
3.62
Descriptive
Statistics
0.01
0.16
0.29 1.11 3.35
2.85
0.72
0.14
2.02
0.14
0.08 0.12 0.05
0.14
0.16
1.76
3.09
2.58
1.43
MedianSample
of
Relating
Nonfinancial
to
0.51
0.68
0.59 3.12
1.92
0.06
0.12
3.51
0.28
0.83
2.44
0.64 1.14 0.26
0.40
3.17
5.09sd.
2.67
Publicly
81 77 180 349 1 2 7 8 44 16 66 117 209 132353353185353353n
Traded
Market-to-Book
0.23
0.36 1.94
0.20
TABLE
0.01
0.01
0.02
0.19
0.05
3.01Mean Australian
0.38
0.30 0.32 0.09
0.09
2.68
1.27
2.53
2
Ratios
and
Firms
0.08
0.08 0.99
0.07
0.38
0.33
0.52 2.96
0.01
0.01
0.02
0.02
0.00
0.07
0.75
0.04 0.12 0.01
1.92
0.04
1.20
1.67
from
Median
Variables
Mining
1991
0.31
1.61
0.00
0.00
0.45 0.40 0.25
0.14
0.54
0.22
2.80
3.60
6.13s.d.
36 44 109 267 0 1 2 3 15 10 17 32
169 107270272130272272n
to Used
in
1995
the
Empirical
0.99
0.34
0.77 1.24
1.11
1.11
0.31
2.21
0.13
2.06 2.47 1.24
4.45
3.39
3.42
0.24
1.30Mean
0.95
0.13
0.75 0.32
0.11
1.00
0.09
1.00
1.69
0.07
1.57 0.62 0.07
1.93
3.84
2.00
0.99
Median
0.42
0.63
0.62 3.30
0.51
2.51 5.51 3.21
1.14
0.10
2.56
1.14
0.45
3.19
5.20
4.92
1.69s.d.
Tests
Financial
16 26 45
121 0 0 21 21 9 4 77 84
108 76 19919967 199199n
FINANCIAL,
REVALUED
on
a
NI BVV
ognized PPE DISC

nonzero
COST
TANGIBLE,
AND
INTANGIBLE
ASSETS
213
INTAN
COST
REVAL
INTAN
INVEST
and= = = = = = = =
revaluation
revalued
amounts
in
Book Share
REVAL
andthe
DIRECTOR-all
Property,
Disclosed,
Intangible
Operating
s.d. amount
DIRECTOR-OLD
DIRECTOR-OLD
value price
DIRECTORPCURR
is denote Investments.
DIRECTORLPREV2
INDEPENDENT-all
INDEPENDENT-all
as
but of
INDEPENDENT-OLD
INDEPENDENTOLD
plant,
current
of
assets.
INDEPENDENT-CURR
INDEPENDENT-CURR
INDEPENDENT-PREV2
INDEPENDENT-PREV2
notincome.
Non-market-based
denotes
based
and
equity
year,
on
fiscal
thea recognized
after
estimate
standard
recognized,
of
0.28
0.48
0.38
0.88
0.44
0.44
1.30
1.40
0.17
1.14 0.53 0.18
0.14
0.46
equipment.
year-end.
amounts
directors'
previous
firm
asset
or
subtracting
two
deviation.
based
value
value,
0.21
0.09
0.32
0.40
0.27
0.05
0.23
0.05
0.50 0.13 0.13
0.28
0.17
0.74
years,on
or
independent
historical
earlier.
All
based
recognized
on
estimates.
0.41
0.42
2.15
4.25 1.00 0.24
0.40
0.36
0.89
0.10
0.45
0.46
5.57
0.16
cost
appraisers'
and
variables
present
investments,
10 9
value
3 22 14 29 13 53
of
are
valuation.
revaluation.
property,
For
CURR,
deflated
plant,
by
andanalysts'
IIBIEIS
0.45
0.15 0.58
0.16
0.34
0.04
PREV2,
0.01
0.12
0.09
0.09
0.07 0.07
revalued
number
and
of
OLD
amounts,
shares
earnings
equipment,
whether
outstanding.
and
n the
0.20
0.44
0.76
0.17 0.91
0.04
and
forecasts.
denote
DIRECTOR
277 77 78 46 16184
0 0 0 0 0 0 0 0
56
15 5 9 23 64
intangible
assets.
0.21
1.85
0.30
0.45
1.20
0.23 0.74 0.21
2.56
0.20
indicates
recognized
INDEPENDENT
number
of
denote
revalued
whether
amount
is
observations
the
with
recbased
0.23
0.59
0.06
0.45
0.05
0.23 0.09 0.21
1.46
0.23
3.11
1.98
2.70
0.42
0.10
0.17 1.48 0.19
0.26
0 0 0 0 1 3 4 8
66
15 11 19 35 11
214
MARY E. BARTH
AND
GREG
CLINCH
each asset category.It revealsthatthe mean (median) market-to-book

ratio ranges from1.30 (0.99) for financialfirmsto 3.01 (1.67) for mining
firms.These statisticsindicate that,despite asset revaluations,on average,
sample firmshave net off-balance-sheetassets. Untabulated statistics
reveal that for the three samples together,share price, P. and the nonmarket-basedestimateof firmvalue, V are highlypositivelycorrelated
(Pearson correlation= 0.854). Although one would expect a significant
positivecorrelationbecause both are measures of firmvalue, the difference in the source of the estimatesmakes the correlationstriking.
Table 2 reveals that revaluationscomprise a large fractionof recognized amounts for all asset categoriesand most investmentrevaluations
are based on directors'valuations. Revalued investmentamounts most
frequentlyare based on currentvaluations,although many mining and
nonfinancialfirms'investmentrevaluationsare more than three years
old.14 In contrast,there are manyPPE revaluationsin all age categories
for all three industries.Regarding timingof revaluations,untabulated
statisticsreveal that there are manyPPE revaluationsin each year since
before 1981. Althoughsome investmentrevaluationsalso predate 1981,
thereare almostnone between 1981 and 1985. Almostno intangibleasset
revaluationspredate 1988.
Table 2 also reveals that many nonfinancial firmsrevalue intangible
assets,but no miningand fewfinancialfirmsdo so.15However,because
mining firmsinclude intangible mineral rightsin PPE, some revalued
PPE for mining firmsrelates to intangible assets. Untabulated statistics
indicate thatthe most commonlyrevalued intangibleasset fornonfinancial firmsis brands. For these firms,revalued intangiblesinclude brands
identifiedseparately:32%, brands, patents,and licenses identifiedas a
group: 15%, licenses identifiedseparately:13.5%, goodwill: 13.5%, technology assets: 12%, and other, including executorycontracts:13.5%.16
Finally,table 2 revealsthatmostrevaluationsare based on directors'valuations,except forPPE revaluationsfornonfinancialand financialfirms,
which oftenare based on independent valuations.17
14 Because most financial firms' investment revaluations that are based on directors' valuations also are current, our findings in table 6 below relating to age of financial firms'
possessive investment revaluations could be attributable to the same revaluations as the
findings relating to director-valuation-based financial firms' investment revaluations in table 5. The statistics in table 2 suggest that other revaluation partitions we investigate are unlikely to be driven by the same observations.
15 Review of annual reports reveals that intangible assets revaluations do not relate to
the purchase of intangibles, e.g., through a purchase-business combination. Rather, intangible asset revaluations relate to revaluing intangibles either by recognizing internally generated intangibles or changing the carrying amount of a purchased intangible asset.
16 The distributions of revalued intangibles are similar for the large- and small-firm subsamples, although large firms have a greater percentage of revalued goodwill and the small
firms have a greater percentage of revalued brands and other intangibles.
17 The statistics in table 2 indicate that many of the cost and revaluation amounts have
skewed distributions. However, untabulated statistics reveal that rank correlations among
REVALUED
FINANCIAL,
TANGIBLE,
AND
INTANGIBLE
ASSETS
215
5. Findings fromPrice and Non-Market-BasedValue

Regressions
5.1
MAJOR ASSET
CLASSES
Table 3, panels A and B, present summarystatisticsfrom estimating

(3) and (4) togetherwith p-values associated with tests of equality of
coefficients.To mitigateeffectsof extremeobservations,we exclude observationswith estimated residuals greater than three standard deviationsfromzero. Also, we onlyestimatea coefficientfora particularasset
partitionif the number of firmswithnonzero observationsfor thatpartitionexceeds five.FollowingBarthand Kallapur [1996], we base all test
refersto
statisticson White [1980] standard errors.The termsignificant
statisticalsignificanceat a levels less than 5%, using a one-sided alternative,because we predictall coefficientsto be positive.Tabulated findings
and interare based on estimatingall equations pooled cross-sectionally
temporally;untabulatedfindingsfromseparate-yearestimationsresultin
similarinferences.
Looking firstat the price regressionfindingsin table 3, panel A, we see
that revalued amounts in all three asset classes are value relevant; the
are concoefficientson INVEST-REVAL,PPEREVAL, and INTANAREVAL
differentfromzero.18As
sistentlypositive,as predicted,and significantly
expected, coefficientson most other independent variables are significantlypositive.The exceptions are those on intangibleasset cost-based
amounts,INTANiCOST forminingfirms,and otherdisclosed but not recognized value estimates,DISC, fornonfinancialfirms.
The p-values associated with tests of coefficientequality reveal that
the null hypothesisthat all balance sheet coefficientsare equal is rejected, except for mining firms,indicating that not all components of
book value of equity have the same value multiple. Similarly,testsgenerallyreject the null hypothesesthat all -COST coefficientsare equal,
whereas equality of all JREVALcoefficientsis rejected only for nonfinancialfirms.Tests comparing coefficientson cost-based and revaluation-based amounts reject equality onlyfornonfinancialfirms'PPE and
intangible assets, suggesting that in most cases investors do not distinguish cost- and revaluation-basedamounts for investmentsor PPE.
the variables are similar to the Pearson correlations. The statistics also indicate that the
level of correlation is not extreme. The average absolute correlation (rank correlation)
between each of the asset cost and revaluation amounts is 0.20 (0.18), 0.31 (0.32), and
0.45 (0.45), for nonfinancial, mining, and financial firms, respectively.
18To investigate whether the significant relation is attributable to the act of revaluation
rather than to the revalued amounts, we reestimated (3) after including indicator variables that equal one if the firm had nonzero assets in that class and cost basis, and zero
otherwise. Our inferences generally are unaffected. Also, because NI includes revaluations
recognized in earnings, RIPJPL,we reestimated the table 3 specifications defining NIas net
income excluding RRIPL. Our inferences are unaffected.
TABLE
3
SummaryStatistics
fromRegression
ofPrice,P, and Non-Market-Based
EstimateofValue,V, on
Incomeand BookValueofEquityPartitioned
byAssetClass and ValuationBasis
SampleofPubliclyTradedAustralianFirmsfrom1991 to 1995
Panel A: Price as Dependent Variable
Nonfinancial
Variable
Coef.
t
Intercept
0.40
3.16
BV
1.34 12.20
3.83
NI
2.65
DISC
-0.37 -0.70
COST
1.03
5.13
-INVEST
1.45 13.15
-PPE
7.17
1.18
-INTAN
REVALUATION
1.22
5.52
-INVEST
2.71
0.59
-PPE
7.85
0.65
-INTAN
n
347
0.808
Adj. R2
p-Values forTests of CoefficientEquality
Nonfinancial
CoefficientTest
All Balance Sheet
0.00
All -COST
0.06
All .REVAL
0.03
INVEST -COST and _.REVAL
0.52
PPECOST and -REVAL
0.00
0.00
INTANCOST and _REVAL
Mining
t
Coef.
0.19
2.32
6.48
1.24
1.95
2.66
3.84
3.39
Financial
Coef.
t
0.81
7.09
0.68
5.27
3.85
5.68
0.78
7.32
1.40
1.37
-0.24
3.46
9.77
-0.23
0.26
0.41
1.41
2.33
2.15
2.45
1.37
1.42
3.03
5.82
0.33
0.55
6.23
1.91
268
0.872
Mining
0.55
0.31
0.92
0.96
0.84
Panel B: Non-Market-BasedValue Estimateas Dependent Variable

Nonfinancial
Mining
t
Coef.
t
Coef.
Variable
2.73
Intercept
1.86
7.07
0.28
4.07
BV
0.61
4.51
0.43
2.46
3.36
1.75
NI
3.92
0.83
DISC
-0.19 -0.56
0.45
COST
1.95
-0.39 -1.06
0.42
_INVEST
7.91
0.94
7.96
0.66
.PPE
-0.35 -0.64
-0.27 -0.96
-INTAN
REVALUATION
3.69
3.34
0.82
2.82
_INVEST
....PPE
-0.64 -2.58
1.09
7.22
0.35
2.19
-INTAN
n
184
129
0.684
0.909
Adj. R2
195
0.932
Financial
0.00
0.00
0.44
0.44
0.74
Financial
Coef.
t
1.83
3.95
2.08
0.52
1.81
2.43
-3.65 -1.69
0.22
1.47
3.07
1.03
1.97
3.42
-0.07
-0.17
-0.36
-0.26
67
0.748

Financial
Nonfinancial
CoefficientTest
Mining
0.00
All Balance Sheet
0.00
0.00
0.01
0.07
All -COST
0.00
0.01
0.88
All .REVAL
0.00
0.04
0.00
INVEST -COST and _.REVAL
0.20
0.00
0.01
PPEMCOSTand _REVAL
0.20
0.04
INTANCOST and _REVAL
of firm
Pis sharepriceas of fiscalyear-end.
Visnon-market-based
estimate
value,basedon present
BVis bookvalueof equityaftersubtracting
investments
valueof IIBIEIS analysts'
earningsforecasts.
income.
assets(INTAN). NIis operating
(INVEST),property,
plant,andequipment
(PPE), andintangible
amounts
DISCisdisclosed,
assetvalueestimates.
COST and REVALdenoterecognized
butnotrecognized,
ofsharesoutstanding.
Data
Allvariables
aredeflated
basedon historical
costandrevaluations.
bynumber
areonlyestimated
if
foreachassetpartition.
Coefficients
limitations
of coefficients
precludeestimation
therearenonzeroobservations
formorethanfivefirms.
REVALUED
FINANCIAL,
TANGIBLE,
AND
INTANGIBLE
217
ASSETS
TABLE
4
Summary StatisticsfromRegressionofPrice, P. on Income and Book Value
ofEquity Partitioned byAsset Class and Valuation Basis
Sample ofPublicly Traded Australian Firmsfrom 1991 to 1995
Nonfinancial
Variable
Intercept
BV
NI
DISC
COST
-ASSOCLINVEST
-LISTED-INVEST
-PROP-PPE
-P&E.YPE
-GDWL-INTAN
-VARIED-INTAN
REVALUATION
-ASSOCLINVEST
-LISTED-INVEST
-PROP-PPE
-P&E-PPE
-VARIEDiINTAN
n
Adj. R2
Mining
Financial
Coef.
0.37
1.35
2.45
-0.27
t
3.08
13.25
3.98
-0.47
Coef.
0.19
1.20
1.90
3.65
t
2.19
5.86
2.68
4.56
Coef.
0.86
0.23
5.12
0.50
t
7.55
2.21
8.25
4.94
0.00
1.31
1.32
1.50
1.86
1.10
0.00
6.08
5.01
13.01
4.90
5.85
1.97
1.39
1.31
1.44
-4.83
2.27
3.07
3.02
7.77
9.11
-3.50
3.92
0.73
0.52
-0.40
0.85
-0.10
2.08
2.16
5.07
-0.92
5.56
-0.13
7.09
0.46
1.22
0.38
0.91
0.85
346
0.832
0.92
5.61
1.69
1.40
5.28
1.59
0.99
-1.51
2.19
3.18
2.23
-1.52
5.32
0.26
-0.52
-6.20
5.32
-1.78
-4.93
p-Values for Tests of Coefficient Equality

Coefficient Test
Nonfinancial
268
0.884
Mining
197
0.947
Financial
All Balance Sheet

0.00
0.00
0.00
ASSOC INVEST_ COST and JREVAL
0.60
0.68
LISTED INVEST_ COST and _ REVAL
0.53
0.78
0.00
PROP PPE..COST and _ REVAL
0.00
0.00
0.82
P&E PPE&COST and _REVAL
0.08
0.38
0.00
VARIED INTAN_ COST and _REVAL
0.35
P is share price as of fiscalyear-end.BV is book value of equity aftersubtractinginvestments(INVEST),
property,plant, and equipment (PPE), and intangibleassets (INTAN). NI is operating income. DISC is disclosed, but not recognized,assetvalue estimates.ASSOC (LISTED) denotes associated companies (listedinvestments); PROP (P&E) denotes property(plant and equipment); GDWL (VARIED) denotes goodwill (varied
intangibles). COST and REVALdenote recognized amountsbased on historicalcost and revaluations.All variables are deflatedby number of shares outstanding.Data limitationspreclude estimationof coefficientsfor
each assetpartition.Coefficientsare onlyestimatedif thereare nonzero observationsformore than fivefirms.
Findingsreported in section 5.2 below,where we partitionby asset subclass, indicate thatthe rejectionsof coefficientequalityin table 3 are attributableto property,in the case of PPE, and goodwill,in the case of
intangibleassets.
If we turnnext to the findingsfromthe non-market-basedestimateof
firmvalue, V,regression,table 3, panel B, reveals that,because calculating V requires analyst coverage and earnings forecasts,the sample is
less than one-half as large as the price regressionsample. Nonetheless,
regarding revalued amounts, there are only three inconsistenciesbetween the findingsbased on price and V Specifically,for nonfinancial
218
MARY E. BARTH
AND
GREG
CLINCH
firms,revalued PPE is significantly

negativelyassociated with V but significantlypositivelyassociated with price. For financial firms,revalued
investmentsand revalued PPE are insignificantly
associated with V but
significantly
associated withprice. Tests comparing coefficientsin panel
B reject equality more frequentlythan is the case for the price regressions in panel A.
In section 8.1 we report findingsfrom estimating(3) separatelyfor
the large and smaller sample firms.Firmswith analystcoverage, which
comprise the sample in table 3, panel B, are comparable to the larger
firmsample in section 8.1. Findings reported there for the larger firms
are consistentwiththose reportedin table 3, panel B. This suggeststhat
the inconsistenciesbetween the table 3, panel A and panel B findings
are attributableto differencesin firmsize across the two samples,not to
differencesin the dependent variables,P and V Thus, the table 3, panel
B findingsindicate that implicationsforfutureprofitability
of revalued
assets are reflectedin non-market-basedestimatesof firmvalue and in
share prices.
5.2
ASSET
SUBCLASSES
In this section, we investigatefurtherthe potential for differential

value relevance across asset classes by disaggregatingeach major asset
class into twosubclasses.EEH's findingsalso motivatethissection'sanalysis. Because more of EEH's sample firmsrevalue propertythan other
assets, one interpretationof their findingsis that theirvalue relevance
findingfor revaluationsprimarilyis attributableto property.Our findings indicate thisis not the case forour sample, in thatinvestments'and
intangibleassets' revalued amountsare significantly
associatedwithshare
prices and estimatesof futureprofitability.
However,in section 5.1 we aggregatepropertyand plant and equipment; in thissection,we investigate
separatelyits two subclasses.19
Table 4 presents results from estimating (3) but disaggregatinginvestmentsinto investmentsin associated companies and other,primarily
listed,investments;PPE into property,primarilyland and buildings,and
plant and equipment; and intangibleassets into goodwill and other intangibles.Bernard [1993] leads us to expect that investmentsin associated companies, plant and equipment, and other intangible assets are
more likely to be associated with firms'futureprofitabilityand, thus,
share prices,than listed investments,property,and goodwill.
Findings in table 4 reveal that, as expected, revalued investmentsin
listed companies are significantly
associated withprices for all three industries. However, revalued investmentsin associated companies are
onlyvalue relevantforminingfirms.Also, revalued propertyis onlymar19Property (plant and equipment) revaluation findings are based on 253 (98), 88 (82),
and 60 (16) observations for nonfinancial, mining, and financial firms, respectively.
REVALUED
FINANCIAL,
TANGIBLE,
AND
INTANGIBLE
ASSETS
219
ginallysignificantly
positivelyassociated withprice fornonfinancialfirms
and it is insignificantly
associated with price for mining and financial
firms.20Revalued plant and equipment is significantly
related to price,
but onlyforminingfirms.Unexpectedly,revalued plant and equipment
is significantly
negativelyassociated withprice forfinancialfirms.There
are insufficient
observationsto estimatea coefficientforrevalued goodwill,perhaps because goodwillcan onlybe revalued downward.However,
consistentwith table 3, table 4 reveals that revalued intangible assets
other than goodwill are value relevant.
Probabilityvalues fromtestsof equality of coefficientsreject,among
others,the null hypothesisthat all balance sheet coefficientsare equal
for all specifications.However, the statisticsfail to reject the null hypotheses of equal coefficientsfor cost and revalued amounts for several
asset subclasses. For example, for nonfinancial and mining firms,only
equality of cost and revalued propertyamounts is rejected. Failure to
reject these null hypothesessuggestsinvestorsoften do not distinguish
valuation implicationsof cost and revalued amounts.
We do not tabulate the summarystatisticsfromregressionsin which V
is the dependent variable. However,the evidence fromthose estimations
largelyis consistentwith that fromthe price regressions,although several coefficientsare no longer significantlydifferentfromzero, likely
reflectingthe substantiallysmallersample size. The most notable differences relate to nonfinancial and financial firmsfor which the coefficients on revalued propertyare significantly
negativelyrelated to V
5.3
DIRECTORS
VERSUS
INDEPENDENT
VALUERS
Australianfirmscan base revaluationson directoror independent appraiser value estimates.We seek to determinewhethervalue relevance
of revalued amounts differsby valuation source. If independent appraiserestimatesare more reliable than those of directors,eitherbecause
of theirasset value estimationexpertiseor because theylack motivesto
manage financial statementamounts, then one would expect independent appraiser-basedrevaluationsto be more value relevantthan those
based on directorvaluations.If directorshave privateinformationabout
asset values and reflectthat informationin theirvalue estimates,then
one would expect director-basedrevaluationsto be more value relevant.
In manycases, firmsdisclose that the directorsconsidered independent
appraisals in arrivingat theirvaluation.
Table 5 presentsthe results.It reveals that,in most cases, revalued assets based on director and independent appraiser valuations are significantly
positivelyassociated withprice, although,again, resultsforPPE
20 Untabulated findings reveal that the negative, although not significant, coefficient on
property revaluations for financial firms is attributable to banks. When we eliminate banks
from the financial firm sample, the coefficient becomes significantly positive. Eliminating
the banks also increases the significance of the positive coefficient on PPE in table 3.
220
MARY E. BARTH
AND
GREG
CLINCH
TABLE
Summary
Statistics
fromRegression
ofSharePrice,P, on Incomeand BookValueofEquity
Partitioned
byAssetClass, ValuationBasis, and SourceofValuation
Variable
Intercept
BV
NI
DISC
COST
-INVEST
_PPE
-INTAN
REVALUATION
-INVEST-D)IRECTOR
-INVEST-INDEPENDENT
-PPEJIDIRECTOR
-PPE.INDEPENDENT
JINTANJIMRECTOR
-INTAN.INDEPENDENT
n
Adj. R2
Nonfinancial
Coef.
t
0.58
3.60
1.17
7.14
2.92
3.50
-0.32 -0.64
t
2.08
6.61
2.90
4.33
Financial
Coef.
t
0.75 7.05
0.70 5.71
3.43 5.52
0.73
7.54
1.19
1.41
0.99
4.34
9.35
4.73
1.35
1.39
0.23
3.40
9.80
0.23
0.37
0.52
1.22
3.46
2.46
2.77
1.03
3.39
1.30
3.18
-0.07
0.49
0.48
0.61
347
0.767
-0.21
2.01
3.75
2.33
1.93
0.63
5.15
1.58
0.37
0.25
0.85
0.17
6.59
3.47
2.63
0.44

CoefficientTest
Nonfinancial
All Balance Sheet
All INVEST.REVAL
All PPELREVAL
All INTANLREVAL
Mining
Coef.
0.17
1.31
2.07
3.60
0.00
0.06
0.60
268
0.875
Mining
0.09
0.01
195
0.933
Financial
0.00
0.17
0.08
Pis share price as of fiscalyear-end.BVis book value of equityaftersubtractinginvestments(INVEST),

property,plant, and equipment (PPE), and intangibleassets (INTAN). NI is operating income. DISC is
disclosed,but not recognized,asset value estimates.COST and REVALdenote recognized amounts based
on historicalcost and revaluations.DIRECTOR and INDEPENDENT denote revaluationbased on directors' and independent appraisers'valuation.All variablesare deflatedbynumber of shares outstanding.
Data limitationspreclude estimationof coefficientsfor each asset partition.Coefficientsare only estimated if thereare nonzero observationsformore than fivefirms.
are not consistent across the three industries.21 Interestingly, in several

cases, coefficients on director-based revalued amounts are significantly
larger than those on independent appraiser-based revalued amounts, suggesting the director-based amounts do not have more estimation error
than the independent appraiser-based amounts. Untabulated findings
from the Vregressions generally corroborate those from the price regressions, although some coefficients for nonfinancial and financial firmsare
no longer significant. Taken together, the table 5 findings indicate directors' valuations result in value-relevant revalued amounts as often as do
independent appraisers' valuations, suggesting the relevance of directors' private information about asset values counterbalances the value
21As withthe table 4 results,the findingsrelatingto PPE forfinancialfirmsare sensitive
to includingbanks in the sample. When we exclude banks, the coefficienton independent
PPE revaluationsfor financialfirmsbecomes significantly
positive.
REVALUED
FINANCIAL,
TANGIBLE,
AND
TABLE
INTANGIBLE
221
ASSETS
Summary
Statistics
fromRegression
ofSharePrice,P, on Incomeand BookValueofEquity
Partitioned
byAssetClass, ValuationBasis, and AgeofRevaluation
SampleofPubliclyTradedAustralianFirmsfrom
1991 to 1995
Nonfinancial
Variable
Intercept
BV
NI
DISC
Mining
0.37
1.38
2.18
-0.47
2.90
13.90
3.75
-0.86
0.26
1.22
1.73
3.19
3.19
6.37
2.35
3.40
0.79
0.59
4.91
0.65
7.23
4.96
7.72
7.36
1.04
1.56
4.92
14.23
1.54
1.35
3.61
9.70
0.26
0.34
1.19
7.52
-0.64
2.42
1.93
-0.57
0.78
1.42
1.40
1.44
3.28
5.31
1.00
0.02
2.36
0.05
0.30
5.99
0.94
0.19
1.89
2.03
0.33
4.86
0.21
-0.07
4.90
0.76
-0.14
2.13
Coef.
COST
-IAVEST
-PPE
-INTAN
REVALUATION
-INVEST.CURR
-INVEST-PREV2
-INVEST-OLD
0.50
_PPE.CURR
-PPE-PREV2
-PPE.OLD
JINTANCURR
-INTAN-PREV2
JINTANOLD
0.54
0.35
0.60
1.05
0.65
0.90
348
0.807
n
Adj. R2
Balance Sheet
INVEST.REVAL
PPE.REVAL
0.00
0.05
0.79
INTANLREVAL
0.03
Coef.
0.88
1.58
1.22
1.55
4.93
8.52
6.13
p-Values for Tests of Coefficient Equality

Coefficient Test
Nonfinancial
All
All
All
All
Financial
Coef.
268
0.872
196
0.947
Mining
Financial
0.00
0.06
0.04
0.00
0.00
Pis shareprice as of fiscalyear-end.BVisbook value of equityaftersubtractinginvestments(INVEST),

property,plant, and equipment (PPE),and intangibleassets (INTAN). NI is operating income. DISCis
disclosed,but not recognized,assetvalue estimates.COST and REVAL
denote recognized amountsbased
on historicalcost and revaluations.CURR,PREV2, and OLD denote whetherthe recognized revalued
amount is based on a revaluationin the currentyear,the previoustwoyears,or earlier.All variablesare
deflatedbynumberof shares outstanding.Data limitationspreclude estimationof coefficients
foreach
assetpartition.Coefficientsare onlyestimatedif thereare nonzero observationsformore thanfivefirms.
relevance enhancing effects of independent appraisers' expertise and

lack of self-interest.
5.4
AGE OF REVALUED
AMOUNT
Although current revaluations likely reflect current value, Australian

firms need not revalue assets every year and, thus, some revalued
amounts are based on out-of-date, and perhaps stale, valuations. To investigate effects on value relevance of revaluation age, we reestimate (3)
and (4) partitioning revalued amounts into three age categories: current year, previous two years, and older than three years.
Table 6 reveals that revalued investments are significantly associated
with price for more current age categories and revalued intangible assets are value relevant regardless of age. Revalued PPE in no individual
222
MARY E. BARTH
AND
GREG
CLINCH
age categoryis significantly

related to price for nonfinancialfirms;for
miningfirms,currentand old PPE revalued amounts are value relevant,
but not those in the PREV2category;and forfinancialfirms,onlyold revalued amounts are value relevant.22Tests of coefficientestimatesreject
the null hypothesisthat differentage categorycoefficientsare equal in
most cases. Untabulated findingsfromthe V regressionsgenerallycorroborate those fromthe price regressions.
6. Findings fromReturns Specifications

Thus far,the empirical analyses focus on associations between share
price, or a non-market-basedestimateof firmvalue, and assets recognized at revalued amounts. In this section,we estimatethe relation between current-year
revaluationsand share returns.Finding a significant
relationbetweenrevaluationsand returnsis strongevidence thatrevaluations are value relevantand timely.However,because firmsdo not revalue assets everyyear,there are substantiallyfewerobservationsforthis
analysisand revalued amounts likelyreflectvalue changes over several
years,resultingin the associated valuation effectsbeing reflectedat least
partiallyin share prices before the returnswindow.Both of these effects
reduce our abilityto detect a significantrelation between revaluations
and returns.
Table 7,panel A, presentssummarystatisticsfromestimating(8), which
includes revaluationreserveincrements,RRJ,and revaluationsincluded
as part of earnings,RRIPL. It reveals thatfor nonfinancialfirms,RRIPL
is not. The reverseis
is significantly
positivelyrelated to returns,but RRlJ
true for mining and financialfirms.Panel B of table 7 presentsresults
fromestimating(9) and indicatesthatRRlfor investmentsis significantly
positivelyrelated to returnsforboth applicable samples,whereasRRJfor
PPE is significantly
positivelyrelated to returnsonly for mining firms.
Contraryto predictionsand expectationsbased on the price regressions,
RRlfor intangibleassetsis significantly
negativelyrelated to returns.The
RRIPL is infindingsforRRIPL are noticeablydifferent.For investments,
related to returnsforall industries,whereas,consistentwith
significantly
predictions,forPPE and intangibles,RRIPL is significantly
positivelyrelated to returnsfor all applicable samples. The asset class is "unknown"
for some assets because disclosuresdo not alwaysidentifythe asset class
to which each revaluationrelates.
Table 7, panel C, presentsresultsfromestimating(8) but partitioning
revaluationsbysource, i.e., director-or independent appraiser-basedvaluations. Consistentwiththe price regressions,the findingssuggestdirector-basedrevaluationsare value relevantat least as oftenas independent
22As with tables 4 and 5, the financial firm PPE findings are sensitive to including banks
in the sample. When we exclude banks, the coefficient on old PPE revaluations becomes
insignificantly different from zero.
REVALUED
FINANCIAL,
TANGIBLE,
AND
INTANGIBLE
ASSETS
223
TABLE
7
SummaryStatistics
fromRegression
ofReturnson Income,Changein Income,and Current-Year
in EarningsorDirectly
Revaluations,Partitioned
byRecognition
in Equity
Panel A: AggregateRevaluations
Nonfinancial
Variable
Intercept
NI
ANI
RRI
RRIPL
n
Adj. R2
Coef.
0.17
-0.20
0.31
0.30
0.79
303
0.144
t
8.29
-7.25
7.40
0.84
2.17
Panel B: Revaluations PartitionedbyAsset Class

Nonfinancial
Variable
Coef.
t
Intercept
0.17
8.11
NI
-7.57
-0.20
ANI
0.31
7.74
1.01
0.24
1.85
0.57
RPLLINTAN
-1.61
-4.81
RR[-unknown
-5.83
-1.19
-5.14
1.32
-1.38
3.31
RRI-INVEST
RRIPPE
RRIPL.INVEST
RRIPL.PPE
RRIPLJINTAN
RRIPL-unknown
n
Adj. R2
1.84
1.91
-2.71
304
0.143
-0.46
Mining
Coef.
t
0.23
0.72
0.31
0.25
0.11
249
0.092
5.09
1.73
2.42
2.20
0.28
Mining
Coef.
t
0.23
5.26
0.68
1.61
0.31
2.39
0.50
2.11
-0.58
1.19
-0.93
2.24
249
0.096
RR[-unknown
RRIPLJLDIRECTOR
RRIPLJINDEPENDENT
RRIPL-unknown
n
Adj. R2
t
4.98
-2.42
2.92
1.92
-1.40
Financial
Coef.
t
4.87
0.13
-0.24 -2.38
0.09
3.27
0.23
-0.53
2.43
-0.68
-0.28
-1.35
166
0.575
Panel C: Revaluations PartitionedbyValuation Source

Nonfinancial
Mining
Coef.
Variable
Coef.
t
t
Intercept
NI
ANI
RRI-ItRECTOR
RRIPIINDEPENDENT
Financial
Coef.
0.13
-0.23
0.08
0.19
-0.31
166
0.578
t
5.01
-1.88
1.32
0.14
0.77
0.17
-0.20
0.31
0.78
0.87
8.17
-7.23
7.37
2.10
1.25
0.08
0.16
0.19
1.43
4.03
-0.12
303
0.137
3.46
2.37
-0.15
-0.61
-0.09
-0.74
-1.43
0.12
249
0.084
0.30
-0.08
166
0.580
-0.65
0.23
0.72
0.31
0.27
5.01
1.58
2.40
1.33
Financial
Coef.
0.13
-0.21
0.06
0.14
0.26
0.24
0.20
1.05
Returns are 12-month returns ending at year-end (pricet + dividends, - pricet-1)Ipricet-1. NI is operat-
ing income. A denotes annual change. RRJisrevaluationreserveincrement,i.e., current-yearrevaluation amount recognized directlyin equity.RRIPL is revaluation reserve incrementin profitand loss,
i.e., current-yearrevaluation amount recognized in earnings. INVEST is investments.PPE is property,
plant, and equipment. INTAN is intangible assets. DIRECTOR and INDEPENDENT denote source of
revaluation amount. unknown denotes revaluationswhere disclosures do not identifyasset partition.
Data limitationspreclude estimationof coefficientsforeach revaluationpartition.Coefficientsare only
estimatedif there are nonzero observationsformore than fivefirms.
224
MARY E. BARTH
AND
GREG
CLINCH
appraiser-basedvaluations.Director-basedRRJand RRJPLand indepenpositivelyrelated to returns

dent appraiser-basedRRIPL are significantly
differentfrom
fornonfinancialfirms;no other relationsare significantly
zero.23
7. Distinguishing
AssetImpairment
fromOtherRevaluations
This section reportsfindingsfromtwo analysesfocused on the valuation effectsof Australian accounting amounts that are not observed
under U.S. GAAP AustralianGAAPrequires recognizingrevaluationsin
earningsor equitydepending on whetherthe revaluationis up or down
and on prior upward or downwardrevaluationsof the same assets. In
particular,RRJis positiveonlywhen an asset is writtenup fromits carrying value (either based on previous upward revaluationsor historical
cost); RRI is negative only when a previouslyupward-revaluedasset is
revalued downward. RR[ amounts would not be observed under U.S.
GAAp24 Analogously,positiveRRJPLwould not be observed under U.S.
GAAPbecause RRJPLis positiveonlyforupward revaluationsof a previouslydownward-revaluedasset,which is not permittedunder U.S. GAAP
The only revaluationspermittedunder U.S. GAAPare those recognized
as negativeRRJPL,i.e., a downwardrevaluationof an asset thathad not
previouslybeen writtenup.
We reestimate (3) and (4) afterpartitioningrevalued amounts into
those more likelyto be statedabove or below historicalcost. Because the
informationnecessaryfor a completelyaccurate partitionis not available, we rely on a classificationalgorithmand include an "unknown"
categoryforeach asset class. Our algorithmis as follows.First,we obtain
the revaluationdate from annual report footnote disclosures. Because
our revaluationdata begin in 1991, we classifyrevaluationsas unknown
if the date is before 1991. Second, if the date is between 1991 and 1995,
we determinewhetherthere is a revaluationincrementin thatyear for
the same asset class or, if thereare no revaluationincrementsidentified
for thatclass,we determinewhetherthere is an unclassifiedrevaluation
increment.25If we are unable to identifya revaluationincrementin that
year,we classifythe revaluationas unknown.Third, ifwe identifya revaluation incrementthatmatches by year and asset class, or is unclassified
but matches by year,we classifythe carryingvalue as above cost if the
23 In all three panels of table 7, nonfinancial and financial firms exhibit a significantly
negative association between returns and net income. Untabulated findings indicate this
result is attributable to the smaller sample firms. Omitting these firms results in a significantly positive association between returns and net income, without affecting our inferences relating to revaluation increments.
24 Although asset write-downs are required under U.S. GAAP, negative RR.would not be
observed under U.S. GAAP because a previous write-up of the asset could not occur.
25By revaluation increment, we mean an increment or decrement, depending on the
sign of the increment.
REVALUED
FINANCIAL,
TANGIBLE,
TABLE
AND
INTANGIBLE
225
ASSETS
Summary
Statistics
fromRegression
Price,P, on Incomeand BookValue
ofEquity,Partitioned
byRevaluedAssetsAboveand BelowCost
Nonfinancial
Variable
Intercept
BV
NI
DISC
COST
-INVEST
-PPE
.INTAN
REVALUATION
-INVESTABOVE
-INVEST-BELOW
-INVEST-unknown
-PPEPABOVE
_PPE.BELOW
-PPE-unknown
_INTANLBELOW
-INTAN-unknown
n
Adj. R2
Coef.
0.43
1.39
2.53
-0.33
t
3.50
13.48
4.18
-0.61
0.92
1.40
1.25
3.97
13.46
7.66
2.11
1.02
0.99
0.47
6.26
0.83
-2.24
0.72
345
0.822
11.64
1.95
10.86
2.03
2.95
3.57
-1.29
8.21

CoefficientTest
Nonfinancial
All Balance Sheet
All INVEST.REVAL
All PPE.REVAL
All INTANLREVAL
0.00
0.00
0.02
0.09
Mining
Coef.
Financial
0.25
1.23
2.17
2.89
t
2.93
6.19
3.04
3.69
Coef.
0.73
0.79
3.53
0.76
t
6.92
6.70
5.45
7.64
1.54
1.32
-0.65
3.74
8.79
-0.59
0.32
0.43
1.17
3.32
2.53
2.85
5.90
1.76
0.50
1.46
1.55
4.65
2.70
0.83
1.88
6.25
0.39
0.18
0.36
0.55
6.46
2.83
3.52
2.08
1.18
3.25
268
0.879
Mining
0.00
0.00
0.23
194
0.940
Financial
0.00
0.03
0.00
Pis share price as of fiscalyear-end.BVis book value of equityaftersubtractinginvestments(INVEST),

property,plant, and equipment (PPE), and intangibleassets (INTAN). NI is operatingincome. DISC is
disclosed,but not recognized,assetvalue estimates.COST and REVALdenote recognized amountsbased
on historicalcost and revaluations.ABOVE,BELOW and unknowndenote whetherthe recognized revalued amount is likelyabove or below historicalcost, or whetherit is not possible to make an assessment.
All variables are deflated by number of shares outstanding.Data limitationspreclude estimationof
coefficients
foreach asset partition.Coefficientsare onlyestimatedif thereare nonzero observationsfor
more than fivefirms.
revaluationis to the revaluationreserve.We classifythe carryingvalue as

below cost if the revaluationis taken to earnings.26
Table 8 presentsfindingsrelatingto (3) and reveals that revalued inrelated to share prices regardlessof
vestmentsand PPE are significantly
26Obviously,our algorithmis imperfect.For example, all revaluationsprior to 1991 are
classifiedas unknown.Also, firmsrevalue assetsby class, so it is possible thata revaluation
we classifyas above-costactuallyis the net of an upward and downwardrevaluationof two
to identifythe asset class
assetswithina single asset class. Moreover,it is sometimesdifficult
to whicha revaluationrelates,even if a descriptionof the asset is disclosed, e.g., some valuations are disclosed by asset class, but revaluationincrementsare sometimesdisclosed by
a coarser classification.To the extent there is error in our asset classifications,we will be
unable to detect systematicdifferencesbetween the revalued asset categories.
226
MARY E. BARTH
AND
GREG
CLINCH
whethertheyare above or below historicalcost,withthe single exception

of above-costPPE revaluationsfor miningfirms.These findingssuggest
thatupwardand downwardrevaluationsof investmentsand PPE are value
relevant.We are unable to classifymostintangiblerevaluations,although
related to
those we are able to classifyas below cost are insignificantly
price. Testsof equalityof coefficientsreject the null, except forthose on
PPE forminingfirmsand intangibleassets.
Untabulated findingsfromthe Vregressionsreveal some differentinferencesfromthe price regressions.For nonfinancialfirms,below-cost
revalued investmentsand all revalued PPE amounts are insignificantly
positivelyrelated to V Contraryto predictions,above-costrevalued PPE
negativelyrelated to V For mining
fornonfinancialfirmsis significantly
related to V; it is insigfirms,above-cost revalued PPE is significantly
nificantlyrelated to price. For financial firms,no revalued amount is
related to V
significantly
Table 9 presentsresultsfromestimatingthe returnsregressions,after
partitioningRRJand RRJPLby sign. Panel A presentsresultsfor aggregate revaluationsand indicatesthat,fornonfinancialfirms,onlynegative
RRJPL,whichwould be observed under U.S. as well as AustralianGAAP,
is significantly
related to returns,and itsrelationis positive,as predicted.
This findingindicates thatasset write-downsfromhistoricalcost are relevant to investorsand timely.For mining and financialfirms,only posipositivelyrelatedto returns,as predicted.Contrary
tiveRRlis significantly
negativelyrelated to returns
to predictions,positivePRRJPL
is significantly
forboth samples. It is also negativelyrelated to returnsfor nonfinancial
so. These findingsindicate thatupward
firms,although not significantly
revaluationsrecognized in earnings are valued negativelyby investors,
suggestinginvestorsdiscountdiscretionaryearningsincreases.For financial firms,investorsalso discountnegativeRRIPL; itscoefficientis significantlynegative.27
Table 9, panel B, presentsresultsfromestimating(9) partitioningRRI
and RRIPL by sign. It reveals thatinvestments'RRJare positivelyrelated
reto returns,regardlessof sign, but only positiveRRI are significantly
lated. FindingsforPPE RRJare mixed. NegativePPE RRIfor nonfinancial
firmsare significantly
positivelyrelated to returns,as predicted,but the
forthe other twoindustries.PositivePPE RRHare
relationis insignificant
significantlypositivelyrelated to returns for financial firmsbut are
relatedformining(nonfinancial)
negatively(insignificantly)
significantly
firms.RegardingRRJPL,in contrastto predictions,investmentRRIPL are
negativelyrelated to returns,regardlessof signor industry,althoughonly
so for positiveRRJPLfor financialfirms.Negative PPE and
significantly
27The number of nonzero observations for RRILPOSITIVE (RRILNEGATIVE) is 29, 6,
and 26 (31, 9, and 22) for nonfinancial, mining, and financial firms, respectively. For
(RRJPL.NEGATIVE) the number of nonzero observations is 8, 5, and 7
RRIPL-POSITIVE
(34, 28, and 17).
227
REVALUED FINANCIAL, TANGIBLE, AND INTANGIBLE ASSETS
TABLE
9
SummaryStatistics
fromRegression
ofReturnson Income,Changein Income,and Current-Year
Revaluations,Partitioned
byRecognition
in EarningsorDirectly
in Equityand Sign
Panel A: AggregateRevaluations
Variable
Intercept
NI
ANI
RRI-POSITIVE
RRI-NEGATIVE
RRIPL-POSITIVE
RRIPL.NEGATIVE
n
Adj. R2
Nonfinancial
Coef.
t
0.17
8.20
-0.20
-7.24
0.31
7.38
0.03
0.07
0.76
1.21
-2.60
-1.34
0.40
4.28
303
0.140
Panel B: Revaluations PartitionedbyAsset Class

Intercept
0.17
8.02
NI
-0.20
-7.59
ANI
0.31
7.75
0.85
1.91
RRIINVEST-POSITIVE
RRIINVEST.NEGATIVE
14.80
1.27
-0.28
-0.61
RIRPPE-POSITIVE
0.80
1.65
RRLPPE-NEGATIVE
-6.17
-1.19
RRL-unknown-POSITIVE
-0.83
-1.71
RRIPL._.INVEST-POSITIVE
-5.82
-1.42
RRIPL.INVEST-NEGATJVE
0.79
RRIPL-PPE-NEGATIVE
2.31
1.60
1.67
RSPLPINTAN-NEGATIVE
-3.40
-0.58
RRIPL-unknown-NEGATIVE
n
304
Adj. R2
0.144
Panel C: Revaluations PartitionedbyValuation Source
Intercept
0.18
8.24
NI
-0.20
-7.27
ANI
0.31
7.41
0.55
2.93
RRILDIRECTOP-POSITIVE
19.66
2.17
RRWLDIRECTOPLNEGATIVE
RRI-INDEPENDENT-POSITIVE
RRILINDEPENDENT.NEGATIVE 13.20
2.82
-0.34
-0.65
RRunknown-POSITIVE
0.54
0.78
RRWunknown..NEGATIVE
RRIPLHDIRECTORLPOSITJVE
RRJPLJDIRECTOPLNEGATIVE
1.02
2.72
0.37
1.69
RRIPL..unknown-POSITJVE
NEGATIVE
-0.47
-0.60
RRNPL_unknown_
n
303
Adj. R2
0.144
Mining
Coef.
t
0.23
5.13
0.71
1.63
0.31
2.42
0.53
3.24
0.54
0.82
-12.88
-2.46
-0.18
-1.05
249
0.087
0.23
0.68
0.31
5.22
1.53
2.40
0.49
0.50
2.49
0.77
-0.91
0.88
-1.42
1.59
249
0.094
Financial
Coef.
t
4.07
0.12
-0.23 -2.36
0.08
2.58
0.23
1.74
0.07
0.26
-0.24 -2.28
-0.42 -7.36
166
0.573
0.13
-0.24
0.08
0.26
0.12
-1.70
-0.11
4.04
-2.37
2.92
1.96
0.48
-2.15
-0.10
-0.25
-0.40
-2.33
-1.72
166
0.568
0.24
0.77
0.32
0.18
1.73
5.14
1.69
2.46
2.61
6.54
-0.14
-0.20
15.44
1.51
-0.19
249
0.088
-0.48
0.13
-0.20
0.05
0.23
-0.06
0.05
0.28
0.21
-0.11
-0.33
-0.81
4.10
-1.83
1.26
1.35
-0.19
0.06
0.70
1.20
-0.11
-0.29
-1.66
-0.11
166
0.569
-0.84
Returnsare 12-monthreturnsending at year-end(pricet+ dividendstRR~isrevaluationreserve

pricet-1)Ipricet-1.
increment, i.e., current-year revaluation amount recognized directly in equity. RRIPL is revaluation reserve increment in profit and loss, i.e., current-year revaluation amount recognized in earnings. NI is operating income. A
denotes annual change. INVEST is investments. PPE is property, plant, and equipment. INTAN is intangible assets.
DIRECTOR, INDEPENDENT, and unknown denote source of valuation used as basis for revaluation amount. POSITIVE
and NEGATIVE denote sign of revaluation amount. Data limitations preclude estimation of coefficients for each
revaluation partition. Coefficients are only estimated if there are nonzero observations for more than five firms.
228
MARY E. BARTH
AND
GREG
CLINCH
intangibles' RRIPL are positivelyrelated to returns,as predicted. The

findingsindicate thatreturnsgenerallyreflectnegativerevaluationsrecognized in earningsas predicted.They also indicate thatpositiverevaluationsrecognized in earningsare viewednegativelybyinvestors,although
the evidence relates only to investments.
Table 9, panel C, reportsfindingsfrompartitioningRRI and RRIPL
by sign and source of valuation and reveals no particular pattern of
significancefor coefficientson director- and independent appraiserbased valuations; we have insufficientobservations to estimate coefficients forindependent-basedvaluationsrecognized in earnings.
8. Additional Analyses
8.1
FIRM SIZE
Sample firmscomprise two disparate size groups, the top 100 firms
and 250 smallerfirms.It is possible thatlarge and smallfirmshave different economic characteristics,which could affectour inferencesregarding revaluations.In particular,the availabilityof informationsources to
assistinvestorsin theirassessmentof revaluationdisclosureslikelyvaries
byfirmsize. Thus, we presentin table 10 findingsfromprice regressions
analogous to those in table 3 separatelyforthe top 100 firmsand the 250
smallerfirms.
Table 10 reveals thatinvestmentand intangiblerevalued amounts are
significantly
positivelyrelated to price, regardlessof firmsize, with the
single exception of investmentrevalued amounts for financialfirms.In
contrast,PPE revalued amounts are only significantly
positivelyrelated
to price for small nonfinancial,large mining,and small financialfirms.
Untabulated findingsbased on partitioningPPE into subclasses reveal
that the significanceof PPE for small firmsis attributableto plant and
equipment, not property.Untabulated findingsalso reveal littledifference in significancebetween director-and independent appraiser-based
valuationsor age-partitionedrevaluations,althoughdirector-basedrevalued amounts are somewhatmore stronglyassociated withprice forsmall
firmsthan independent appraiser-based amounts. Untabulated results
fromreturnsregressionsindicate no systematicdifferencesbetweenlarge
and small firms.
8.2
ANALYST
FOLLOWING
AND ASSET
TURNOVER
Comparing the number of observationsfor the price and V regressions in table 3 revealsthatmanysample firmshave no analystfollowing.
Firms' informationenvironments,such as reflectedin analystfollowing,
mightaffecthow investorsview revaluations.Also, because lack of analystfollowingis concentratedin the small firmsample, it is possible that
the differenceswe document in table 10 are attributableto differences
in analystfollowing.To investigatethispossibilitywe partitionthe small
REVALUED
FINANCIAL,
TANGIBLE,
TABLE
AND
INTANGIBLE
229
ASSETS
10
SummaryStatistics
fromRegression
ofPrice,P, on Income
and BookValueofEquityPartitioned
byAssetClass
SampleofPubliclyTradedAustralianFirmsfrom
1991 to 1995 Partitioned
bySize
(t-Statistics)
Coefficients
Nonfinancial
Variable
Mining
Financial
Large
Small
Large
Small
Large
Small
Intercept
1.80
(4.73)
0.08
(0.84)
0.66
(2.29)
0.22
(4.15)
4.11
(10.31)
0.38
(4.79)
BV
0.75
(5.49)
1.49
(13.70)
1.23
(4.89)
0.78
(3.51)
-0.15
(-1.34)
0.68
(6.24)
NI
5.49
(4.43)
1.16
(3.29)
1.95
(1.46)
2.28
(4.31)
2.89
(4.23)
2.83
(4.09)
-0.63
(-1.41)
1.31
(1.89)
2.86
(3.13)
2.24
(1.15)
0.39
(2.48)
0.62
(6.04)
-0.05
(-0.17)
0.96
(3.38)
1.08
(1.93)
2.15
(5.12)
-0.29
(-2.97)
0.70
(6.57)
1.19
(6.56)
1.25
(12.22)
1.31
(6.12)
0.96
(5.64)
-0.04
(-0.38)
0.55
(2.79)
-0.30
(-1.30)
1.43
(9.76)
-0.55
(-0.55)
3.71
(6.76)
0.03
(0.05)
0.66
(2.96)
1.87
(3.75)
3.47
(3.81)
0.41
(4.26)
-0.75
(-4.88)
0.41
(8.29)
-0.89
(-1.88)
1.04
(7.45)
1.64
(5.97)
-0.18
(-0.56)
-0.53
(-1.60)
1.12
(3.02)
1.78
(8.34)
188
0.830
105
0.814
DISC
COST
-INVEST
-PPE
JINTAN
REVALUATION
-INVEST
-PPE
-INTAN
n
Adj. R2
0.69
(3.74)
160
0.794
161
0.659
62
0.959
135
0.905
Pis share price as of fiscal year-end. BVis book value of equity after subtracting investments (INVEST),
property, plant, and equipment (PPE), and intangible assets (INTAN). NI is operating income. DISC is
disclosed, but not recognized, asset value estimates. COST and REVAL denote recognized amounts based
on historical cost and revaluations. All variables are deflated by number of shares outstanding. Data limitations preclude estimation of coefficients for each asset partition. Coefficients are only estimated if
there are nonzero observations for more than five firms.
firmsample based on analystfollowingand repeat our price and returns

analyses.Untabulated resultsreveal fewsystematicdifferencesin significance of revalued amounts between the analystand no-analystsamples.
We observe only that investmentrevalued amounts are more strongly
associated with price for financial firmsnot followed by analyststhan
for financialfirmsfollowed by analysts,and revaluationsrecognized in
equityare positivelyrelated to returnsforfirmsnot followedby analysts,
but negativelyrelated to returnsforfirmsfollowedby analysts.
230
NARY
E. BARTH
AND GREG
CLINCH
Finally,detectingvalue relevance, and differencesin value relevance,

could be difficult
forrevalued amounts of firmswithcost-basedamounts
close to currentvalue. To investigatethis possibilitywe reestimatethe
price and returnsregressions,permittingthe coefficienton PPE revaluations to differforfirmswithlow asset turnover.We define asset turnover
as capital expendituresdivided by the carryingamount of PPE, and set
an indicator variable equal to one for firmswithasset turnoverbelow
the sample median, and zero otherwise.Untabulated resultsreveal no
significantincremental coefficientfor nonfinancial firms.For mining
negativefor aggregate
firms,the incrementalcoefficientis significantly
thaton propertyrevalPPE and plant and equipment revalued amnounts;
positive.For financialfirms,the incrernenued amountsis insignificantly
tal coefficientis insignificantly
negativeforPPE, reflectinga significantly
negative(positive) incrementalcoefficientforproperty(plant and equipment). Only the plant and equipment findingis consistentwithexpectations. Untabulated results from the returns regressionsindicate that.
contraryto expectations,the incrementalcoefficientforminingfirmsis
differentfromzero
significantly
negative. However, it is insignificantly
for nonfinancialand financial firms.Thus, we find littleevidence supportingthe conjecture and none of these findingsresolvesunexpected
findingsin tables 3, 4, and 7.
9. Summary and Concluding Remarks

This studyinvestigatesthe extent to which differenttypesof revalued
assets of Australianfirmsare associated withshare prices and non-market-based estimatesof firmvalue, which are based on the presentvalue
of analysts'forecastsof futureearnings.We contributeto extantresearch
oR,aggregate revaluation data by investigatingwhetherrelevance, relibyasset class
ability,and timelinessof revalued assets varysystematically
or by source or age of the revalued amount, and whetherprice and returnassociations mirrorthe abilityof revalued amounts to reflectanticWe also investigatewhetherasset impairments,
ipated futureprofitability.
a typeof revaluationpermittedunder U.S. GAAP,exhibitdifferentrelations with firmvalue fromother asset revaluations,which are noL permittedunder U.S. GAAP
Taken together,our findingssuggest revalued financial,tangible,and
intangibleassetsare value relevant.Although thefinancialassetsfindings
are not surprisingbased on prior research,the intangibleassets findings
are strikingin theirstrengthand consistency.Findingsfor PPE are less
consistent,although the strongervalue relevance for plant and equipment than forpropertysuggestsrevalued operatingassetsare morevatue
relevant than assets less directlyrelated to operations. Perhaps surprisingly,thereis littleevidence to indicate thatdirector-and independent
byinvestors,suggesting
appraiser-basedvaluationsare viewed differently
REVALUED
FINANCIAL,
TANGIBLE,
AND
INTANGIBLE
ASSETS
231
directors'privateinformationenhances value estimatesdespite theirpotentialself-interested

financialstatementmanagement incentives.Also,
several year-oldrevalued amounts are value relevant,suggestingtimeliness is not criticalforlong-termasset revaluations.Finally,the evidence
suggeststhatboth upwardand downwardrevaluationsare value relevant,
although the discretionarynature of asset write-upsthrough earnings
can affecttheirvalue relevance.
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Journal of Accounting Research

Revalued Financial, Tangible,

the asset classeswe investigateseparately,and amountsrecognized at cost

thoseusing shareprices,increasingour confidencethatrevaluedamounts

GAAP FOR REVALUATIONS

Australian GAAP (ASRB 1010 [1987], as amended by AASB 1010

an indirect measure of expected futureoperations. We provide direct

estimatesof fairvalue per se, the estimateslikelyare more closelyrelated

We seek to assess the value relevance of revaluationsas a recognition

where P is share price of firmi at time t, BVE is book value of equity

cost or at revalued amounts.When investigatingsubclasses of assets and

Bernard [1993] suggestsusing benchmarksbased on estimatedfuture

the link between asset values and future operations is importantfor

Variables other than V are as previouslydefined. Following Ohlson

whereFEt+i is the IIBIEIS median earningsforecastas of the end of the

where gtis the time t dividend growthrate (Penman [1996]). Thus, V

Findings fromestimating (3) and (4) provide evidence on whether

where RET is raw return,i.e., Pt + DIVt - Pt-, / Pt-,, v includes other,

4. Data and DescriptiveStatistics

The sample is composed of the 100 largest companies listed on the

Table 1, panel A, presentsindustryand calendar year breakdownsof

Panel B: Size of Sample Firms

108 76 19919967 199199n

ognized PPE DISC

each asset category.It revealsthatthe mean (median) market-to-book

5. Findings fromPrice and Non-Market-BasedValue

Table 3, panels A and B, present summarystatisticsfrom estimating

Panel B: Non-Market-BasedValue Estimateas Dependent Variable

p-Values forTests of CoefficientEquality

p-Values for Tests of Coefficient Equality

All Balance Sheet

firms,revalued PPE is significantly

In this section, we investigatefurtherthe potential for differential

p-Values forTests of CoefficientEquality

Pis share price as of fiscalyear-end.BVis book value of equityaftersubtractinginvestments(INVEST),

are not consistent across the three industries.21 Interestingly, in several

p-Values for Tests of Coefficient Equality

Pis shareprice as of fiscalyear-end.BVisbook value of equityaftersubtractinginvestments(INVEST),

relevance enhancing effects of independent appraisers' expertise and

Although current revaluations likely reflect current value, Australian

age categoryis significantly

6. Findings fromReturns Specifications

Panel B: Revaluations PartitionedbyAsset Class

Panel C: Revaluations PartitionedbyValuation Source

appraiser-basedvaluations.Director-basedRRJand RRJPLand indepenpositivelyrelated to returns

p-Values forTests of CoefficientEquality

Pis share price as of fiscalyear-end.BVis book value of equityaftersubtractinginvestments(INVEST),

revaluationis to the revaluationreserve.We classifythe carryingvalue as

whethertheyare above or below historicalcost,withthe single exception

REVALUED FINANCIAL, TANGIBLE, AND INTANGIBLE ASSETS

Panel B: Revaluations PartitionedbyAsset Class

Returnsare 12-monthreturnsending at year-end(pricet+ dividendstRR~isrevaluationreserve

intangibles' RRIPL are positivelyrelated to returns,as predicted. The

firmsample based on analystfollowingand repeat our price and returns

Finally,detectingvalue relevance, and differencesin value relevance,

9. Summary and Concluding Remarks

directors'privateinformationenhances value estimatesdespite theirpotentialself-interested

tives."Abacus(March 1992): 36-57.

SHARPE, I. G., AND R. G. WALKER. "AssetRevaluationsand Stock MarketPrices."Journalof

of Banks' Derivatives Disclosures." Journal of Ac-

countingand Economics(August-December 1996): 327-55.