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DETERMINANT OF ASSET REVALUATION AND FIRM VALUE
(Study of Indonesian Stock Exchange Company)
ZainalAbidinSahabuddin
UniversitasPertahanan Indonesia,
Komplek IPSC Sentul Bogor,
email :zasahabu@yahoo. co.id
Abstract
The purpose of this study is to analyze the effect of leverage, ownership structure, liquidity and size on asset revaluation and its impact on firm value. Sampling method is purposive sampling with criterion of research period is in year 2012-2016 for company doing asset revaluation. Data analysis techniques use partial least square. The result of the research shows that 1) leverage has no effect and significant to asset revaluation, 2) ownership structure has positive and significant effect on asset revaluation 3) liquidity has negative and significant effect on asset revaluation 4) Company size has positive and significant impact on asset revaluation 5) revaluation Asset has negative and significant effect on company value
Keywords: asset revaluation, firm value, partial least square
INTRODUCTION
GAAP's General Accounting Principles and IFRS International Financial Reporting Standards as two internationally accepted standards have different ways of measuring and recognizing the company's assets, in particular to its fixed assets. At this time, IFRS companies assess fixed assets using a fair or fair value system. Indonesia which entered IFRS into its accounting system (PSAK) from 1 January 2012 also received assessment and recording. This change will certainly affect regulatory changes, recording, reporting, and disclosure of assets in the financial statements.
This study analyzes the determinants of asset revaluation as measured by Leverage with previous researchers (Barac and Sodan (2011), Lin and Peasnell (2000), Iatridis, (2011), Pierra (2007), Jaggi and Tsui (2001), Choi, (2012) ), Courtenay and Cahan (2004), Azousi and Jarboui (2012), Lopez (1999), Seng and Su (2010)), Ownership Structures with previous research (Piera (2007), Back and Lee (2016)), Liquidity with previous researcher (Manly (2008), Tay (2009), Cheng and Lin (2009), Barac and Sodan, (2011), Seng and Shu (2010)), and firm size with previous researchers (Lin and Peasnel 2000) Seng and Su (2010), Barac and Sodan (2011) Tay (2009)) and its impact on corporate value. Furthermore, this study also analyzed the effect of asset revaluation has a positive effect on firm value such as Courtenay and Cahan (2004) and Tay (2009). The purpose of this study is to analyze the effect of leverage, ownership structure, liquidity and size to asset revaluation and its impact on firm value
Conceptual Framework and Hypothesis Development
Revaluation of Fixed Asset
According to Tay (2009), fixed assets revaluation can be upward revaluation and downward revaluation. Upward revaluation is the restatement of asset book value as far as it does not exceed net current value or recoverable value.upward revaluation refers to the incremental value of asset book value, while downward revaluation means that net current value is below the book value. The upward revaluation of fixed assets increases the value of shareholders' equity and fixed asset value. Upward revaluation can also lower the financial-leverage ratio such as debt equity ratio (Tay, 2009).
PSAK No. 16 year 2017 explained that when an asset is still revalued, the carrying amount of the property, plant and equipment is adjusted for the amount of revaluation. On the date of revaluation, the asset is treated in one of the following ways: (a) the gross carrying amount is adjusted consistently with the revaluation of the carrying amount of the asset. For example, the gross carrying amount may be restated with reference to market data that can be observed or may be restated proportionally to changes in the carrying amount. The accumulated depreciation at the date of revaluation is adjusted to equalize the difference between the gross carrying amount and the carrying amount of the asset after deducting the accumulated impairment loss; or (b) the accumulated depreciation is eliminated against the gross carrying amount of the asset.
1) Effect of leverage on revaluation of fixed assets
Leverage describes all of the company's assets and financial risks that will be the burden of future companies that will ultimately affect revenue. Companies that use high debt structures to finance their investments are considered to be at risk. Companies with high debt levels will decide to revalue their assets to improve the company's feasibility before the creditors. Companies with high debt ratios are more likely to revalue their assets because revaluation may lower the value of the debt ratio. Including leverage is the debt equity ratio and debt asset ratio. Research in accordance with this study were Barac and Sodan (2011), Lin and Peasnell (2000), Iatridis, (2011), Piera, 2007), Jaggi and Tsui, (2001), Choi (2013), Courtenay and Cahan, ( 2004). Azouzi and Jarboui, (2012), Lopes, (2012) and Seng and Su (2010).
H1: Leverage positively affects asset revaluation
2) Influence of ownership structure on revaluation of fixed assets
A company with ownership of centralized ownership is more capable of revaluing assets. Included in the ownership structure are majority ownership and foreign ownership. Research in line with this research is majority ownership and foreign ownership. Piera, (2007) explains that foreign ownership and Baek and Lee (2016) explain that majority ownership positively affects asset revaluation so that higher levels of foreign ownership and majority ownership will increase asset revaluation
H2: The ownership structure has a positive effect on asset revaluation
3) Influence of liquidity on asset revaluation
Liquidity has a significant negative impact on the choice of revaluation methods. Revaluations help provide more actual information about the amount of cash that can be received from asset sales, thereby helping to increase the company's loan capacity and reduce borrowing costs. The choice of revaluation method is likely to be conducted by a company with low liquidity, whereas a company with high liquidity does not need to revaluate its fixed assets. The liquidity includes quick ratios, current ratios and decreased cash flow
Researchers have the same opinion with previous research conducted by Black, Sellers and Manly (2008) and Tay (2009). The researcher assumes that companies with low liquidity tend to choose to use revaluation method to show the value of their fixed assets that can actually be converted in cash, observed by Mainly (2008) and Tay (2009) explains that current ratio negatively affects asset revaluation so that higher the current ratio of asset revaluation will be lower as well as Barac and Sodan (2011) and Sheng Shu (2010), explaining that the decrease in cash flow will revalue the asset,
H3: Liquidity negatively affects asset revaluation
4). The effect of firm size on asset revaluation
Political costs are often associated with firm size. Previous studies used firm size as a proxy of political factor (Lin and Peasnell, 2000a). According to Seng and Su (2010) firm size is an important factor in the company's decision to revalue the assets. When large companies report high profits, this report will draw the attention of regulators and others with power and capacity, to create new rules that reallocate company resources. In addition, large corporations also attract the attention of trade unions as they relate to payrolls by companies (Brown et al., 1992 in Seng and Su, 2010). For that, large companies will use income reducing procedures and reduce the likelihood of loss due to regulation (Brown et al., 1992).
Overseas research finds that large companies will revalue fixed assets (Brown et al., (1992), Tay, (2009), Seng and Su, (2010), Iatridis and Kiligiotis, (2012). or trade unions, large firms will avoid high earnings reporting Upward asset revaluation is an effective way to reduce earnings reporting through increased depreciation costs as a result of an increase in asset revaluation (Seng and Su, 2010) Lin and Peasnel (2000) Seng and Shu (2010), Barac and Sodan (2011), Tay (2009) explain that the higher the size of the firm size firms the ability to revalue the asset will be greater, it explains that firm size positively affects asset revaluation. company size is total revenue and total assets
H4: firm size positively affects asset revaluation
5. Influence of Asset Revaluation on Corporate Value
Revaluation of fixed assets should be a positive information for external parties, because in addition to being able to motivate the improvement of the company's performance reflected in the profit and stock price of the company. Research that is in line with this research is Courtenay and Cahan (2004) and Tay, (2009). Which includes the company's value is tobins Q, stock return and price book value. The hypothesis is that the higher the asset revaluation the higher the value of the firm.
H5: Asset Revaluation has a positive affect on firm value
For more details determinant of asset revaluation and corporate value can be seen in figure 1 model research
Figure 1 Resarch Model
Research Method
The grand design of this research is determinant of revaluation of fixed assets represented by leverage, liquidity ownership structure and firm size that influence to revaluation of fixed assets and its impact to company value, with operationalization of variable in table 3.1
Table 3.1operationalization of variables
Variabel / Sub Variabel / SkalaLeverage (X1) / Debt equty ratio (X1.1) / Ratio
Debt asset ratio (X1.2) / Ratio
Ownership structure(X2) / Majority ownership(X2.1) / Ratio
Foreign ownership(X2.2) / Ratio
liquidty (X3) / Current Ratio (X3.1) / Ratio
Quick Ratio (X3.2) / Ratio
Decrease of cash flow (X3.3)
size (X4) / Logaritmof Total Revenue (X4.1) / Ratio
Logaritmaof Total asset (X4.2) / Ratio
Asset revaluation (Y1) / Logaritmaasset revaluation (Y1.1) / ratio
Firm value (Y2) / Tobins q (Y1) / Ratio
Return (Y2.2) / Ratio
Price Book Value(Y2.3) / Ratio
Sampling method is purposive sampling with criterion 1) The period of study is in 2012-2016 or period in the second stage of convergence of IFRS, 2) company use rupiah currency in its operation activity, 3) the company that used as research sample is company that has done revaluation fixed assets 4) not the banking industry; with criterion test in table 3.2,
Table 3.2 Number of Companies
Number of companies conducting asset revaluation2012 / 9
2013 / 26
2014 / 20
2015 / 32
2016 / 9
This research uses Partial Least Square (PLS) and table 3.2 PLS testing criteria with equation as follows:
Y1 (asset revaluation) : β0 + β1X1 (leverage) + β2X2 (ownership structure)+ β3X3(liquidity)+ β4X4 (size) + ε……………………………………(1)
Y2(Firm Value) : δ0+ δ0Y1 (asset revaluation) + ζ………………………………….(2)
Table 3.2 PLS Testing Criteria
evaluation of reflective measurement modelsloading factor /
loading factor must be above 0.7
composite reliability /
measure internal consistency and its value must be above 0.6
Average variance extracted / AVE value must be above 0.5
R2for endogenous latent variables / R2 results of 0.67, 0.33 and 0.19 for endogenous latent variables in the structural model indicate that the model is good, moderate and weak
f2 for effect size / The f2 value of 0.02 is categorized as the weak influence of the latent variable predictor (exogenous latent variable) on the structural level
The f2 value of 0.15 is categorized as the influence of sufficient latent variables of predictors (exogenous latent variables) on the structural level
The f2 value of 0.35 is categorized as the strong influence of the latent variable predictor (exogenous latent variable) on the structural level
RESULT AND DISCUSSION
The number and name of the company used as the research sample is a company that has revalued fixed assets, is table 4.1
Table 4.1 Test of Outer Loading I
Original Sample (O) / criteria / T Statistics (|O/STERR|) / criteria / conclusionx1.1 <- x1 / 0.732422 / >0.5 / 2.729819 / >1.96 / significant
x1.2 <- x1 / 0.980315 / >0.5 / 3.115990 / >1.96 / Significant
x2.1 <- x2 / 0.992828 / >0.5 / 16.639764 / >1.96 / Significant
x2.2 <- x2 / 0.191499 / <0.5 / 0.593042 / >1.96 / reduksi
x3.1 <- x3 / 0.688042 / >0.5 / 2.159644 / >1.96 / Significant
x3.2 <- x3 / 0.690130 / >0.5 / 2.184614 / >1.96 / Significant
x3.3 <- x3 / 0.366396 / <0.5 / 1.149557 / <1.96 / Reduksi
x4.1 <- x4 / 0.260597 / <0.5 / 0.745155 / <1.96 / Reduksi
x4.2 <- x4 / 0.980121 / >0.5 / 7.545462 / >1.96 / Significant
y1.1 <- y1 / 1.000000 / >0.5 / Significant
y2.1 <- y2 / 0.829193 / >0.5 / 3.256291 / >1.96 / Significant
y2.2 <- y2 / 0.290667 / <0.5 / 0.815179 / <1.96 / Reduksi
y2.3 <- y2 / 0.972122 / >0.5 / 3.941977 / >1.96 / Significant
To perform the test PLS need to be tested the test of validity and reliability. An indicator is valid if it has a loading factor above 0.5 to the intended construct. Output of SmartPLS for loading factor in table 4.2 gives insignificant indicator results will be reduced in this research such as X2.2 ownership of foreign ownership, X3.3 decrease cash flow, X4.1 total revenue and y2.2 stock return
Table 4.2company descriptive
Mean / Minimum / Maximumdar / 0.4823 / 0.2000 / 0.8300
der / 1.5255 / 0.2500 / 4.9700
may / 64.6444 / 33.8100 / 97.5000
CR / 0.7986 / 0.4500 / 1.0300
QR / 0.3714 / 0.2400 / 0.5000
logta / 440,341,048.31 / 361,592,200.36 / 481,855,566.24
logrevn / 3,107,873.01 / 11,310.03 / 109,483,456.14
tobin / 26.8477 / 18.6400 / 48.3200
pbv / 2.3414 / 1.4300 / 4.4600
Based on Table 4.2 Descriptive companies show 1) The average debt asset ratio is 0.4823, this shows that the average debt compared to total assets less than 1 so that the total debt can be supported by total assets so that the company's assets can be used to fund debt; 2) the average Debt equity ratio is 1.5255, greater than 100% so that the sample in this study the amount of debt is greater than the capital, then the debt is certainly not fair, with the record debt is not a debt that ' dangerous', but a debt that does support the company to grow; 3) The average majority of ownership is 64.6444%, indicating that control over 50% of stocks and Claessens (1999) research indicates that majority ownership in Indonesia is mostly family ownership, so family-controlled firms have low agency conflicts . This is due to the low conflicts of interest between principals and agents in family-controlled companies over other companies; 4) The average current ratio of 0.7986 means the current asset is not able to cover all current liabilities so that the company's ability to pay its short-term debt is less; 5) The average value of the quick ratio of 0.3714, it shows that the ratio can not show the ability of the most liquid current assets to cover current liabilities; 6) The average size of the company is the total assets of 440,341,048 thousand, so that companies included in the sample research including large categories; 7) the average Revaluation of Assets is positive amounting to 3,107,873,01 so that the revaluation of the Company's fixed assets, due to an increase in the value of fixed assets on the market or due to the low value of fixed assets in the company's financial statements caused by devaluation or other causes, fixed assets in the financial statements are no longer based on the cost model; 8) The average tobins q is 26.8477. So the greater the value of Tobin's Q indicates that the company has good growth prospects. This can happen because the greater the market value of the company's assets compared to the book value of the company's assets the greater the willingness of the investor to issue more sacrifices to own the company; 9) the average magnitude of pbv is positive at 2.3414 the higher the P / BV value of a stock indicates excessive market perception of the firm's value.
After reducing the invalid indicator then the loading factor in Table 4.3 gives the value above the recommended value of 0.5 and more than 1.96. Means indicator used in this research is valid or have fulfilled convergent validity.
Tabel 4.3 Test of Outer Loading II
Original Sample (O) / Criteria / T Statistics (|O/STERR|) / Criteriax1.1 <- x1 / 0.732422 / >0.5 / 2.924814 / >1.96 / Significant
x1.2 <- x1 / 0.980315 / >0.5 / 3.390226 / >1.96 / Significant
x2.1 <- x2 / 1.000000 / >0.5 / Significant
x3.1 <- x3 / 0.992354 / >0.5 / 337.136891 / >1.96 / Significant
x3.2 <- x3 / 0.987878 / >0.5 / 173.846338 / >1.96 / Significant
x4.2 <- x4 / 1.000000 / >0.5 / Significant
y1.1 <- y1 / 1.000000 / >0.5 / Significant
y2.1 <- y2 / 0.861773 / >0.5 / Significant
y2.3 <- y2 / 0.999411 / >0.5 / Significant
Table 4.4 shows the average variance extracted (AVE) above standardized (0.5), indicating that the construct has good discriminant validity. The Cronbach's alpha value must be greater than 0.6 and the composite reliability must be greater than 0.6 indicating that all constructs in the model estimated in this study are reliable.
Table 4.4. Reliability Test
Cronbachs Alpha / Composite Reliability / AVE / Criteriax1 / 0.920338 / 0.853743 / 0.748730 / >0.6 / Valid&reliable
x2 / 1.000000 / 1.000000 / 1.000000 / >0.6 / Valid&reliable
x3 / 0.980198 / 0.990069 / 0.980334 / >0.6 / Valid&reliable
x4 / 1.000000 / 1.000000 / 1.000000 / >0.6 / Valid&reliable
y1 / 1.000000 / 1.000000 / 1.000000 / >0.6 / Valid&reliable
y2 / 0.915316 / 0.930551 / 0.870738 / >0.6 / Valid&reliable
The f2 value for latent predictor power the coefficient of determinationis shown in Table 4.5. The magnitude of is shown in Table 4.5 for the revaluation of 0.2144 so that 21.44% of asset revaluation can be explained by leverage, ownership structure, liquidity and firm size. While the value of the company can be explained by the asset revaluation of 6.5%
Table 4.5 f2R2test
f2testy1 / Criteria / y2 / Criteria / R Square
x1 / 0.003
x2 / 0.124 / >0.02 weak
x3 / 0.050 / >0.02 weak
x4 / 0.083 / >0.02 weak
y1 / 0.071 / >0.02 weak / 0.214429
y2 / 0.065948
The path coefficients test for the determinant of asset revaluation and firm value can be explained in Figure 3.2 and Table 4.6 on the path coeficients
Figure 2a PLS Algorithm
Figure 2b PLS Bootstrapping
Table 4.6 Path Coefficients
Original Sample (O) / T Statistics (|O/STERR|) / Conclussionx1 -> y1 / -0.053284 / 0.300544 / <1.96 significant , hipotesis 1 recjected
x2 -> y1 / 0.361638 / 4.190516 / >1.96 significant , hipotesis 2 be accepted
x3 -> y1 / -0.624736 / 2.045357 / >1.96 significant , hipotesis 3 be accepted
x4 -> y1 / 0.784414 / 2.807174 / >1.96 significant , hipotesis 3 be accepted
y1 -> y2 / -0.256803 / 2.004614 / >1.96 significant , hipotesis 5 be accepted
1. The Effect of leverage on revaluation of fixed assets
The results showed that leverage has no effect and negatively on asset revaluation. Hail this research in line with Cahan (2004) explains that leverage negatively affect the asset revaluation so that the higher the leverage then the asset revaluation will decrease. Seng and Su (2010) argue that lenders are aware of the asset revaluation and the likelihood arising from the revaluation of assets has become a consideration in determining the debt agreement. The results of this study are in line with Jaggi and Tsui (2001) and Seng and Su (2010) studies, which do not find any effect of corporate debt with the choice of managers to revalue. This study proves that in companies in Indonesia, the increase in leverage is not a variable that motivates managers to perform upward revaluation
2. The Effect of ownership structure on revaluation of fixed assets
The effect of ownership structure with fixed asset revaluation is positive and significant. Concentrated ownership has easy private information access to managers, thereby reducing the traditional agency conflict between managers and shareholders. Gain on this condition, ownership is concentrated as the majority shareholder can influence company policy. This is because management is part of the majority shareholder. In concentrated ownership conditions there is an agency problem between management and shareholders is reduced, but there is another agency problem that is between insider shareholders (manager and majority shareholder) and outsider shareholder (Yunos 2011). Relevant research was conducted by Nekounam et al. (2012) who assume that cooperation between blockers and managers is a very useful thing and this cooperation reduces the task of monitoring, so as to increase the value of the company and affect the perception of other shareholders about the quality of profit through revaluation. Therefore, in this study it was concluded that considering the benefit of conservatism as a criterion of earnings quality, this would make concentrated ownership negatively related to conservatism. Next Yunos (2011), argues that insider ownership (management and majority shareholder) will lead to a lack of conservatism because it does not require this tool to control and monitor for the running of the company's management mechanism. This is because the manager who is the owner, has interests that are in line with the majority shareholder and consequently the use of conservatism as a monitoring tool becomes decreased.