Asset revaluations and credit conditions

Do balance sheet asset revaluations impact firms' credit conditions? This paper provides a positive answer by analysing the effects of unlisted Italian firms. By leveraging the exceptional revaluation option introduced by the Italian government in 2020, we examine whether companies that deviate from the historical cost principle obtain better credit conditions. We find that firms engaging in asset revaluation benefit from lower interest rates on overdrafts and expanded credit, and have an increased likelihood of forming new banking relationships. The impact is stronger for firms with less transparent financial statements and limited to banks not using internal rating models to assess the creditworthiness of borrowers. We identify two primary channels through which these accounting changes influence borrowing conditions: a disclosure channel, which reduces informational asymmetries in the credit market, and a tax-saving channel, which capitalizes on fiscal benefits deriving from increased amortization costs. A text mining analysis of financial statement notes indicates that the disclosure channel plays a central role in enhancing firms' credit access.