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

211 NTU Management Review Vol. 29 No. 1 Apr. 2019 improves the non-contemporaneous return-earnings association or plays a role in conveying future private managerial information, thus the positive association between current returns and future earnings should be enhanced for valuing impaired assets. This study suggests that the recognition of asset impairment in the current year will enhance the informativeness of future earnings. Thus, the second hypothesis is as follows: H2. Ceteris paribus , recognition of asset impairment enhances the informativeness of future earnings. Riedl (2004) argued that discretion over long-lived assets impairment may allow managers to more easily justify their reporting choices. Taiwan’s SFAS No. 35 (and IAS No. 36) is related to managerial estimation of parameters used to determine the amount of recognized impairment, which may be reversed if there is any indication that the recognized impairment loss no longer exists. This discretion may provide opportunities to manipulate reported earnings, inferring that managers strategically determine when to take an impairment loss and when to reverse such a loss (Duh et al., 2009). Trottier (2013) found that impairment reversals can result in more accurate and timely loss reporting, and highlighted that permitting the reversal of impairment losses in the subsequent period may induce managers to manipulate the timing of impairment recognition and reversal to achieve particular reporting objectives. It anomalously appears that a manager recognizes asset impairment in the current year, but then reverse impairment losses in subsequent periods. Thus, impairment reversals may be attributed to management attempts to manipulate earnings reports. Recently, Rennekamp et al. (2015) found that reversible accounting effects encourage the alteration of cash flow outcomes. Their findings to some extent support the idea that reversible accounting is associated with strategic managerial decision making regarding asset impairment. 6 6 Asset impairment reversals issue is not broadly studied and so there is limited empirical evidence in the literature. Chen et al. (2013) use quarterly write-off data and show that firms will improve earnings response coefficient (ERC) when assets impairment is reversal in the same year. Yet, the timely reversal in the estimate of the value of long-lived assets in the same fiscal year may be strong candidate for correcting estimation error rather than managerial incentives reporting. Three studies are closely related to the managerial incentives of impairments recognition. Chen et al. (2009) find that reporting incentives explain asset impairment reversals more than economic factors do. Zhang et al. (2010) provide evidence that companies use the assets impairment reversal practice as an earnings management tool when the accounting standards allow the reversal of previously reported assets impairment losses. Duh et al. (2009) show that badly performing companies are significantly more likely to report impairment reversals and argue that their finding is consistent with the “cookie jar” reserve hypothesis. These three empirical studies are likely to support the idea that impairment reversible accounting is associated with managerial incentives reporting.