An empirical analysis of the motives for and effects of fixed assets revaluation of Indonesian publicly listed companies

Zakaria, Adam (2015) An empirical analysis of the motives for and effects of fixed assets revaluation of Indonesian publicly listed companies. Doctoral thesis, Birmingham City University.

2015_Zakaria_680159.pdf - Accepted Version

Download (2MB)


The harmonization of international accounting standards has been implemented by more than 120 countries throughout the world. Although these standards have been criticised for disregarding local values and accounting systems, the IFRS and IAS provide many more benefits including enhancing the quality and transparency of financial statements. Unlike previous standards, the revised IFASS 16 – 2007 offers two options, the cost or revaluation models for fixed asset measurement. Therefore, conflict of interests may arise due to these options. The cost model favours reliability of its value (completeness, neutrality and freedom from error characteristics) while the revaluation model provides relevant information (predictive value and confirmatory value characteristics) to the public.
This study first proposed a conceptual model that can help Indonesian CFOs in deciding to revalue or not to revalue fixed assets using decision support criteria such as motives, effects, primary decision criteria, business outcomes and impacts. The research then applied stratified random sampling for data gathering over the period of 2008-2012. Three categories were used such as companies’ age (young, middle, and old), size (small, medium, and large), and nine IDX industry classifications. A deterministic model was then developed using nine variables which were broken down into 17 proxies. The natural logarithm scenario provided the highest prediction power The R2 of -2 Log likelihood, Nagelkerke, and Cox Snell were 57.69, 56.4, and 75.2 per cent consecutively. These scenarios also found the most significant variables among other scenarios with six proxies such as CMS, fixed asset intensity, DER, operating income, DER level, and export sales. Based on those significant proxies, this study concluded that companies’ internal benefits from asset revaluation decision making were more dominant than for external benefits. The internal benefits include four proxies (FAI, CMS, DER, and operating income) from three motives such as to gain efficiency/economics, to reduce debt contracting costs, and to reduce political costs. The external benefits include two proxies (DER level and export sales) from motives such as to provide signals for stakeholders; and to reduce information asymmetry. The results found that as of 31st December 2012, only 2.83 per cent of the total 460 Indonesian PLCs applied revaluation model. This figure cited is lower than other countries who have applied IAS 16 earlier than Indonesia such as South Korea, New Zealand, and England and Wales. The research confirms that Indonesian PLCs are cautious in applying the revaluation model because historically, previous IFASS 16 – 1994 only allowed PLCs to apply the cost model only. Furthermore, the revaluation model incurs more costs paid such as for the appraisal fees, auditor fees, and tax agency costs. Furthermore, the having more PLCs applied the revaluation model, external parties such as investors, creditors and consumer. They will enjoy a lower company’s business risk. This circumstance can reduce their expected return and decrease the product and service prices.

Item Type: Thesis (Doctoral)
January 2015Completed
Uncontrolled Keywords: International Accounting Harmonization, Fixed Assets, Revaluation Model, Cost Model, Motives.
Subjects: CAH17 - business and management > CAH17-01 - business and management > CAH17-01-07 - finance
CAH17 - business and management > CAH17-01 - business and management > CAH17-01-08 - accounting
Divisions: Doctoral Research College > Doctoral Theses Collection
Faculty of Business, Law and Social Sciences > Birmingham City Business School
Depositing User: Richard Birley
Date Deposited: 03 Feb 2017 09:54
Last Modified: 22 Mar 2023 11:49

Actions (login required)

View Item View Item


In this section...