臺大管理論叢 NTU Management Review VOL.29 NO.1

Earnings Informativeness of Long-Lived Assets Impairment Recognized and Reversals 204 higher incentives for opportunistic reporting write-offs which, in turn, improves the informativeness of earnings. However, they use the subsequent one-year earnings (year t +1) to examine the informativeness of future earnings and do not examine the effects of ex post write-off reversals due to data availability. Taking advantage of the assets impairment reversals subsample in our study, we extend this stream of research to examine whether the informativeness of a firm’s future earnings associated with asset impairment is compromised by subsequent reversal decisions by management. Our results provide new evidence that informs our understanding of the comprehensive effect of asset impairment on earnings informativeness in Taiwan. This study enriches related research from two angles. First, although asset impairment has been widely documented for decades, the effect on earnings informativeness, specifically the informativeness of future earnings, is largely unknown. We extended Collins et al.’s (1994) model and examined whether the recognition of asset impairment induces discriminated informativeness patterns of current and future earnings. This study shows that asset impairment is informative about future earnings in the expected direction. It suggests that assets impairment represents the underlying economic factors associated with future firm performance and sheds light on the consequences of the implementation of new accounting standards, particularly in emerging markets. Second, asset impairment reversal is an important type of accounting discretion available in countries or jurisdictions that follow IAS/IFRS. Previous studies (e.g., Duh et al., 2009; Zhang et al., 2010; Trottier, 2013; Rennekamp, Rupar, and Seybert, 2015) have shown that managerial incentives for asset impairment decisions are associated with the recognition and reversals of assets impairment. The possibility of reversing impairments may create opportunities for earnings management, but it also provides good market signals. Note that regulators face a dilemma of whether or not to grant managers more discretion to reflect their firms’ underlying economic activities. We document evidence on whether the informativeness of a firm’s future earnings associated with asset impairment is compromised by subsequent reversal decisions. It provides some insight for the debate about the IASB’s allowance of impairment loss reversals. The remainder of this paper is organized as follows. Section 2 provides background information and reviews the relevant literature to develop our testable hypothesis. Section 3 outlines our research design and describes the empirical data. Section 4 presents and discusses empirical findings. Section 5 provides a robustness check on the empirical findings and Section 6 presents conclusions.