How Much Financial Information is in the Historical Cost and Market Valued Balance Sheets?
Jaclyn D. Kropp and
Charles Moss ()
No 143077, 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida from Southern Agricultural Economics Association
Financial accounting has emphasized the historical cost approach because of its objectivity. Yet in the event of bankruptcy and liquidation, assets will be liquidated at their market values. In this paper, we compare the probability of insolvency computed using market values to the probability of insolvency computed using historical costs. We find that the historical value based computation has the potential to both understand and overstate the true probability of insolvency. The disparity between the historical value based computation and the market value based computations depends on the degree of leverage and the age of the assets.
Keywords: depreciation; historical value; loan evaluation; market value; solvency; Agribusiness; Agricultural Finance; Financial Economics; G33; Q14 (search for similar items in EconPapers)
References: View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ags:saea13:143077
Access Statistics for this paper
More papers in 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida from Southern Agricultural Economics Association Contact information at EDIRC.
Series data maintained by AgEcon Search ().