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Investigating Market Reaction to Asset Revaluation

Soltani, Roya | 2020

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 53388 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Ebrahimnejad, Ali
  7. Abstract:
  8. In recent years, some listed companies have re-evaluated their assets, an event that has generally received market attention; In fact, the market seems to be reacting very positively to an accounting phenomenon. In this study, we seek to investigate the market reaction to the revaluation of listed companies in Iran. To do this, we first estimate the market reaction to the news of the revaluation of assets. We then examine the possible reasons for the market reaction to the revaluation. Asset revaluation can improve the firm's access to finance by improving some financial ratios; On the other hand, the increase in capital from the revaluation of firms is accompanied by the issuance of bonus shares and, as a result, a decrease in the theoretical share price. This apparent drop in stock prices can create the illusion among shareholders that lower prices mean more value for the stock and lead to their success and positive market reaction. In order to investigate the effect of each of these two factors on the market response, we use the cross-sectional regression of cumulative abnormal returns for each firm on a set of variables -- including percentage increase in capital, share price before the issuance of bonus shares, age, size, debt to asset ratio, cash flow and inclusion of the firm in Article 141 of the Commercial Code. Based on the results, the decrease in nominal price can be considered as a factor explaining the market reaction. To further explore the reason for the market reaction, we consider whether firms that have re-evaluated their asset could improve their access to finance or reduce their financial costs. For this purpose, we use the panel data of listed companies between 1390 and 1396 for the intensity of access to finance, financial cost, investment, and debt-to-asset ratio, and in a regression considering the firm and year fixed effects, we examine the effect of asset revaluation on firm access to finance. Also, for firms that have re-evaluated in 1397, we use the comparison of 1398 data with 1397. The estimations obtained from this study show the ineffectiveness of asset revaluation on the firm's better access to finance. In fact, the hypothesis of better access to finance cannot explain the market reaction
  9. Keywords:
  10. Cumulative Abnormal Return ; Panel Data ; Financing ; Asset Revaluation ; Listed Companies ; Market Reaction

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