Revaluation of Fixed Assets Before IPO: A Study on Textile Industry in Bangladesh

Abstract

Abstract:The textile and clothing sector of Bangladesh contributes more than 81 percent of foreign exchange earnings of the country. Considering the number of companies listed on the Dhaka Stock Exchange (DSE), textile was the second largest sector having 44 companies after insurance. Around fifty percent companies of the sector became listed on the DSE through Initial Public Offerings (IPO) during the period of January 2010 to March 2016. The study, based on prospectus data, intended to explore the practice of pre-IPO revaluation of fixed assets by textile industry in Bangladesh. Related objective of this study was to find out the factor(s) that influence(s) the growth of revaluation amount. Among the years under study, the highest number of textile companies became listed on DSE during 2014 and 2015 that accounted for about 55 percent growth of the sector. In the midst of controversies and doubts about the application and fairness of asset revaluation practice, a large number of textile companies in Bangladesh have been found revaluing their fixed asset as an option outlined in IAS 16. Thanks to the revaluation of fixed asset, average Net Asset Value (NAV) of textile companies raised from BDT 16.95 per share to BDT 28.54 per share with an increase of 68.38 percent. The study has observed an average increase in the value of fixed assets by 42 percent with a minimum of 4 percent and a maximum of 130 percent. Intensity of fixed assets has been found to have significant negative influence on the growth of fixed assets. This implies that textile companies which have low percentage of fixed assets on total asset observed hefty growth of fixed asset after revaluation. It is expected that the outcomes of the study will be useful to regulators, investors, financial analysts, and academics. Reporting of fixed assets in current market prices would assist investors and others make unbiased predictions about firms' future performance. However, the condition is that asset revaluation should be made with utmost fairness and transparency.