| Abstract: This work intends to investigate the value relevance of revaluation reserves in Brazil. Brazilian companies’ law allows for such reserves as an alternative proxy for the measurement of the value of permanent assets. However, this instrument can be used to increase total assets and book value of equity in order to mislead investors. We use a cross-sectional specification to test the value relevance of the revaluation reserve, in addition to the Ohlson (1995) specification, to explain securities’ prices. We results show that these reserves are not perceived to contain any value by investors. Coefficients are significantly negative showing the bad signal transmitted to investors by the revaluation. This result confirms previous research showing the great discretionary power present in the Brazilian corporate financial reporting strucuture. Future research in this are could be designed to investigate other aspects of the current Brazilian GAAP. Deferrement of currency devaluation expenses are an obvious candidate. Absence of leasing capitalization is another opportunity to further research. |
