Does Credible Mean Reliable? The Case Of Asset Revaluations

Abstract

In this paper we examine whether the utilization of independent valuers provides a credible signal about the underlying reliability of upward asset revaluations. A sample of recognized Australian asset revaluations is used to compare the reliability of independent and director based revaluations of non-current assets. Reliability is defined in terms of ex-post adjustments of recognized value increases, and is determined by an examination of the extent to which upward revaluations are subsequently reversed. Univariate results provide evidence that independent revaluations are more reliable than directors? revaluations. Further, after controlling for opportunistic incentives to revalue, the strength of corporate governance and macroeconomic conditions we find that independent revaluations are more reliable than directors? revaluations over the three years following the revaluations. While the employment of high quality (brand name) valuers may be perceived to add additional credibility to the revaluation, we find that reliability is not related to valuer quality.