 How do firms react to the prohibition of long-lived asset impairment reversals? Evidence from ChinaRan Zhang, Zhengfei Lu and Kangtao Ye Journal of Accounting and Public Policy, 2010, vol. 29, issue 5, 424-438 Abstract: New Chinese Accounting Standards (CAS) released on February 15, 2006, prohibit the reversal of long-lived asset impairments, effective for reporting periods beginning January 1, 2007 and later. This development in the Chinese market provides a unique experimental setting to directly investigate how firms react to the ban on previously-allowed long-lived asset impairment reversals, especially firms that use impairment charges as "cookie jar reserves." By contrasting write-off recognition and reversal across the pre- and post- new CAS announcement regimes, we show that firms listed on Chinese stock exchanges recognized less impairment charges during the "transition" period--after announcement of the new standard and before the effective date--than in pre-announcement periods. Meanwhile, firms with substantial previous write-downs reversed more impairment charges to achieve their earnings targets in the transition period. The new CAS also constraints "big bath" reporting by loss firms. As US GAAP prohibits these reversals and IFRS allows them, our empirical evidence depicts firms' possible reactions in other regimes contemplating doing away with such reversals. Date: 2010 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jappol:v:29:y::i:5:p:424-438 Access Statistics for this article Journal of Accounting and Public Policy is currently edited by L. A. Gordon More articles in Journal of Accounting and Public Policy from Elsevier |
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