EVIDENCE FROM SOUTH AFRICAN CONSTRUCTION AND INDUSTRIAL TRANSPORTATION BUSINESSES ON ASSET REVALUATION

Abstract

This study examines the relationship between asset revaluation and accounting and economic factors among firms listed on the Johannesburg Stock Exchange (JSE). It employs a quantitative model using seven explanatory variables, namely, leverage, operating cash flow, firm size, return on equity, return on assets, Tobin’s q, and common share ownership. The study covers South African companies listed on the Johannesburg Stock Exchange (JSE) that applied asset revaluation at least once during the period 2006 to 2017. The findings of the study reveal that: (1) leverage does not have a significant impact on the revaluation decisions of the sampled firms, (2) macro-economic policy environment could significantly influence revaluation decisions, (3) the size of firms is one of the most important factors that have a significant effect on firm performance, (4) leverage has a significant impact on firm performance, while the other variables show a negative or inverse relationship with the revalued asset. The results of this study will fill a gap in understanding the variables identified by this research study which has justified with most relevant literature that motivates management of South African firms to choose the revaluation model to measure fixed assets. This study contributes to the current body of knowledge and further offers insight into the effect of the revaluation of fixed assets on firm performance, the characteristics of firms that revalue their fixed assets, and whether or not fixed asset revaluation decisions are influenced by the firm’s leverage. This study has also provided a very robust plan for future researchers.