Reversals of impairment charges under IAS 36: evidence from Malaysia
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Accepted Version
Date
2017-06-30
Authors
Shaari, Hasnah
Cao, Tongyu
Donnelly, Ray
Journal Title
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Volume Title
Publisher
Palgrave Macmillan
Published Version
Abstract
We report that firms reversing impairments under IAS 36 are not more incentivized to engage in earnings management and do not actually engage in more earnings management than a control sample matched on size and industry. We observe that reversals are positively associated with stock market valuation changes but not with future operating performance. Bifurcating our reversal firms into earnings managers and other firms, we report that the impairment reversals of the latter are positively associated with future firm performance and current stock market returns, while those of the former are negatively associated with future operating performance and are unrelated to stock valuation. Thus, while on average impairment reversals are undertaken in an unbiased manner, a minority of firms exploit the latitude provided by this fair value accounting standard to manage earnings upward. This research provides useful information to accounting standard setters pertaining to the adoption of fair value accounting methods. It also assists investment analysts by demonstrating how to detect opportunistic reversals of impairments.
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Keywords
Reversal of impairment losses , Firm performance , Financial reporting standard , Abnormal accruals , Earnings management , Malaysia
Citation
Shaari, H., Cao, T. and Donnelly, R. (2017) 'Reversals of impairment charges under IAS 36: evidence from Malaysia', International Journal of Disclosure and Governance, 14(3), pp. 224-240. doi:10.1057/s41310-017-0022-y
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© 2017, Macmillan Publishers Ltd. This is a post-peer-review, pre-copyedit version of an article published in International Journal of Disclosure and Governance. The definitive publisher-authenticated version [Shaari, H., Cao, T. and Donnelly, R. (2017) 'Reversals of impairment charges under IAS 36: evidence from Malaysia', International Journal of Disclosure and Governance, 14(3), pp. 224-240. doi:10.1057/s41310-017-0022-y] is available online at: https://dx.doi.org/10.1057/s41310-017-0022-y