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

Earnings Informativeness of Long-Lived Assets Impairment Recognized and Reversals 208 alternative explanation for impairment reversals, which is that allowing reversals induces truthful reporting without increasing opportunism. There is also evidence that in the 2008- 2009 crisis, the impairment reversal possibility generated increased transparency for investors (Bowen and Khan, 2014). Thus, the managerial incentives hypothesis for assets impairment decisions is incomplete in terms of explaining the reversal of asset impairment recognition. In sum, these studies generally examine the incentives or consequences of asset impairment behaviors and largely overlook the informativeness of earnings for firms which recognize asset impairment. Two studies have examined the earnings informativeness of asset write-offs in Taiwan. Young and Wu (2009) examined the effects of corporate governance on earnings informativeness for firms which recognize asset impairments. They found that, on average, the informativeness of current earnings and subsequent one-year earnings is lower for firms recognizing asset impairments. Yet, their evidence further reveals that for firms with strong (weak) corporate governance, the magnitude of asset impairment is mainly explained by the firm’s economic conditions (opportunistic reporting by managers), which thereby improves (deteriorates) earnings informativeness. We extend this stream of research and examine whether the earnings informativeness of a firm with recognized impaired assets is compromised by subsequent reversals. Recently, Chen, Kao, and Wu (2013) found that firms which recognize asset impairments in a given quarter and then reverse the impairments in the subsequent quarter have a higher earnings response coefficient (ERC) than firms which only recognize asset impairments in a year. Accordingly, they argue that firms will improve earnings informativeness to reflect the true values of assets when asset impairment is reversed in the same year. Chen et al. (2013) focused on the electronic industry and only examined the informativeness of current earnings. The present study covers additional industries and examines the effects of asset impairment on informativeness for both current and future earnings. 2.3 Hypotheses Establishment Previous studies (e.g., Francis et al., 1996; Loh and Tan, 2002; Riedl, 2004) have found that two factors (managerial incentives and economic factors) drive managerial asset impairment decisions. However, the effect of these factors on the characteristics of assets impairment remains unclear because managers have substantial flexibility over the timing, calculation, and presentation of these items (Riedl, 2004). Managers may write down assets to take a bath in the current period, making it more likely to increase earnings