On the Relation between Assets Impairments and Earnings Persistence

• Main Authors: Hsin-Chien Yeh, 葉信謙
• Other Authors: Shao-Pin Wang
• Format: Others
• Language: zh-TW
• Online Access: http://ndltd.ncl.edu.tw/handle/65417491583136126722

碩士 === 國立中興大學 === 會計學研究所 === 97 === Prior literature indicates that, before ARDF (Accounting research and development foundation) released Financial Accounting Statement NO.35 “Assets Impairment Standards”, companies tend to recognize assets impairments than that of the non-recognition ones when the operating performance is deteriorating. Besides, observations indicate that companies’ future expected profits tend to be optimistic after recognizing impairment losses. Hence, this study aims at investigating the impact of assets impairments on financial performance and subsequent performance. In the first part of this study, empirical results reveal that return on assets and earnings persistence have significantly negative association with assets impairments. This finding is similar to that of Strong and Meyer’s (1987) study. It suggests that companies with poor profitability are liable to potential impairments. Moreover, the results also show a significant positive association between assets impairments and fix assets as well as corporate credit risk index, implying companies with higher amount of fix assets and credit risk tend to have higher assets impairments. Inconsistent with expectation, market-to-book ratio is significantly and positively associated with assets impairments. It suggests that companies with higher market-to-book ratio may be able to tolerate higher assets impairments. In the last part of this study, the results show that the companies''s performance does not have an immediate improvement. However, in the second year following the event, companies do have earnings increase but not significant. Besides, the results in the one year after the event also show a positive association between earnings persistence and return on assets, market-to-book ratio as well as earnings before interest and taxes. Nonetheless, return on assets is not significant in the following of second year, this might due to companies have reached stability. Firm size has impact on earnings persistence in the following second year, but not the following year. Finally, the change of management seems not having impact on earnings persistence in both years.