The financial consequences of the revaluation of balance sheets in France during the Great Depression

The practices of abusive revaluation of balance sheets were pointed out in the United States during the interwar period. These practices were seen as potentially exacerbating fraudulent practices by distorting shareholder information (Zeff, 2007). Based on the data of Fabricant (1936), a consensus emerged between the 1930s and 1970s to forbid revaluations, as they were suspected of having precipitated the financial crisis of 1929 (Walker, 1992). Benston's (1973) reinterpretation challenges this view by relativising the importance of revaluations and their consequences on the stability of the American financial system. A consensus then emerged on the lack of links between revaluation practices and the 1929 crisis (Dillon, 1979, Zeff, 2007). Less well known and less documented, re-evaluation practices have existed in countries other than the United States, such as Belgium (De Beelde, 2000) and France (Camfferman and Detzen, 2018) in the wake of post-World War One inflation. Camfferman and Detzen (2018) recalled the relative neglect of these practices in the literature. While in the United States the revaluation of balance sheets went from a free regime to a prohibitive one, in European countries it was subject to rules that left companies the choice of whether or not to implement it. This paper examines the financial effects of balance sheet revaluation practices in France following the tax administration's circular of 25 January 1930. We cross two different sources: on the one hand, the detailed balance sheets and discussions published in "Les Assemblées Générales", a collection of the minutes of the meetings of the main French public companies, over the period 1930-1938 (the date of validity of the circular); on the other hand, stock market data collected in the "Data for FInancial History Database". Our work on balance sheets highlights a double result. On the one hand, French companies make little use of the opportunity to revalue their balance sheets that is granted by the government (2 to 3% each year), despite the fact that this measure had been requested by the business community. On the other hand, for those companies having implemented it, the impact of revaluations on the balance sheet was substantial and significantly increased the total assets. Our work makes it possible to quantify the extent of revaluations by comparing them to the American case and to measure their effects (or lack thereof) on shares' total returns. We can therefore discuss the specific impact of revaluations on the returns on shares of companies listed on the Paris stock exchange, in a regulatory framework that is very different from that of the United States. The significant changes in the balance sheets of the companies revealed 'hidden treasures'.