An empirical investigation of Statement of Financial Accounting Standards No.35 "Accounting for Asset Impairment":Adoption timing motives and value relevance

• Main Authors: Chi-Jang Wang, 王啟彰
• Other Authors: 曹嘉玲
• Format: Others
• Language: zh-TW
• Published: 2004
• Online Access: http://ndltd.ncl.edu.tw/handle/98327786862920014591

碩士 === 淡江大學 === 會計學系碩士班 === 94 === In June 2004, Financial Accounting Standards Board (FASB) issued the Statement of Financial Accounting Standards (SFAS) No.35, "Accounting for Asset Impairment", that firms must follow to report the true values of their long-lived assets. The statement is effective on July 1, 2004 with early adoption encouraged. This study investigates the motives of firms to early-adopt the new standard. The logistic regression results indicate that the industry median of market to book ratio and of stock return are both positively related to the decision to adopt SFAS No. 35 early. In addition, the larger the size, the more likely the firm is to early-adopt the pronouncement. The findings also suggest that when a company experiences below normal earnings, managers are more likely to choose to adopt SFAS No. 35 early, supporting the “big bath hypothesis.” A further analysis is conducted to examine whether the assets governed by SFAS No. 35 (i.e., long-term investment under the equity method, real estate investment, fixed assets, goodwill, intangible assets other than goodwill, lease assets, idle assets, long-term receivables, and deferred expenses) have information content. The results using early-adopting firms indicate that real estate investment is positively associated with cumulative abnormal returns (CAR). Moreover, as asset write-offs increase, long-term investment under the equity method, lease assets, and deferred expenses are negatively related to CAR, but fixed assets are positively associated with CAR. The empirical results using the late-adopting firms indicate that, as the write-offs increase, fixed assets are positively associated with CAR, and intangible assets other than goodwill are negatively related to CAR. These findings suggest that part of the assets governed by SFAS No. 35 provides some extent of value relevance to the investors.