The Effect of Asset Revaluation on Analysts’ Earnings Forecast Error
Authors:   Asia-Europe Perspective Association, Kim Ok-Hyun , Woo Yong-Sang 
Published: June 2018

The purpose of this research is to demonstrate what kinds of correlation there are between the asset revaluation of K-IFRS and analysts’ earnings forecast error. And then, it will also examine how the information about revaluation of the company’s asset according to its ownership structure, affects the analysts’ earnings forecast error. To demonstrate this research, I have classified the sample enterprises into 42 samples which publicly announced the results of revaluation of the company’s asset to KRX from 2009 to 2011 and 500 samples which did not from the 542 year-enterprise samples which can be collected from FN Guide and Kis-Value from 2010 to 2012. The research model is used, by modifying and adjusting Choi and Son(2011) model to the purpose of this research. And the dependent variable was analysts’ earnings forecast error in order to examine the usefulness of the and to test the utility of its information in accordance with foreign ownership ratio.
The results of analysis are as follows. First, it is found that there is a positive correlation between the information of revaluation of the company’s asset and the analysts’ earnings forecast error. This is due to the fact that the revaluation is implemented with diverse purpose of asset revaluation when the information of asset revaluation is given to the market, and thus, in order to analyze the information according to its separated circumstance the costs of analyzing the information of asset revaluation generally increase. And then it can results in the increment of earnings forecast error due to the increment of the complexity of forecasting the earnings. Second, in case of high foreign ownership ratio, the asset revaluation information rather reduce the analysts’ earnings forecast error. Since the transparency of accounting information when the foreign investors act as outside surveillances in the corporates of high foreign ownership ratio, in this information environment, revaluation of the company’s asset can be seen to contribute to the reduction of the analysts’ earnings forecast error. And it can be seen that there is a usefulness of the asset revaluation information.
Even though this research brought a quite difference from the preceding research in terms of previous asset revaluation and the analysts’ earnings forecast error, but this may be due to the difference of analysis model and analysis period of samples used in research. Also, in case of corporates which has a high foreign ownership ratio, the companies would more likely to have an environment with high information transparency. And in this environment, the analysts would find the information which can reduce the analysts’ earnings forecast error and thus, it has a signification in that it can make a difference to the usefulness of the asset revaluation information according to the information environment. This contributes to the decision making process by considering the information environment according to the ownership structure from the perspective of outside information users who utilize the announced information of asset revaluation of companies. However, since most companies among those who implemented the asset revaluation could not collect the analysts’ earnings forecast error, there were only relatively few samples which means there is a weakness of generalizing the results of the research. Nevertheless, after it becomes possible to extract a lot more samples, it is likely that the follow research can be more actively take place in this field.