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

217 NTU Management Review Vol. 29 No. 1 Apr. 2019 variable in the analysis, it is set at zero if the IM value is below 0.1%. 10 Dummy Variable of the Reversing Assets Impairment (REV t ): This study uses a dummy variable to measure firms with asset impairment reversals (REV t ), denoted as one for firms recognizing impairment in year t and reversing some or all of the impairment in the following year ( t +1), and otherwise 0. Control Variables: Increased volatility in earnings may be associated with increased risk of debt default. To avoid default, firm managers are more likely to manipulate reported income which, in turn, can affect earnings informativeness (Whittred and Zimmer, 1986; Carlson and Bathala, 1997). This study uses leverage (LEV t ), defined as total liabilities divided by total assets, as a proxy for default risk. We also incorporate market-to-book ratio (MB t ) which is calculated by regressing the market to book value of common equity at the end of the fiscal year to serve as a proxy for growth opportunities (Collins and Kothari, 1989). Finally, we include firm size (SIZE t ), calculated by the natural logarithm of total assets to control for the potential effects of omitted variables (Becker, DeFond, Jiambalvo, and Subramanyam, 1998). 3.3 Model Specification Earnings reporting may differ markedly between firms due to unobservable firm- specific traits (Henderson and Kaplan, 2000). Using panel data analysis, especially as the estimation focuses on variations within firms, omitted variables bias can be avoided provided the omitted variable is constant over the examined time frame. However, the need to report data consistently across every year in the panel creates difficulty through 10 The enforcement of a materiality threshold for the assets impairment (Bens, Heltzer, and Segal, 2011) in the analysis allows us to focus on firms where the recognition of assets write-off had obviously impact on earnings reporting, which in turn, on earnings informativeness. Moreover, either opportunistic reporting or effectively contracting reasons of assets impairment (Strong and Meyer, 1987; Zucca and Campbell, 1992; Francis et al., 1996; Riedl, 2004; Young and Wu, 2009; among others), it is likely to find that considerable magnitude of assets impairment recognized has earnings and/or economic implication for investors.