Discussion of An Investigation of Revaluations of Tangible Long-Lived Assets

The Easton, Eddey, Harris (1993) study examines market value accounting in a context that could not have been studied in the US. In contrast to the weak evidence of informativeness in FAS 33 and ASR 190 data, the primary analysis consistently indicates that the Australian revaluations improve the alignment of book values and stock prices. The result is particularly interesting given that land and buildings are the primary targets of the revaluations and that the linkage between real estate values and operating cash flows need not be strong. Although Australian managers claim to use revaluations to avoid debt constraints, the adjustments appear to be more than cosmetic; they may be credible mechanisms for communicating information to lenders about changes in underlying fundamental values. In that sense, the results suggest an informational role for accounting in lender-borrower relations. The study also helps underscore how large the variations in international accounting practices are.