An Empirical Study on the Relationship between Accounting Conservatism and Asset Impairment Recognition: Evidence from Companies in Taiwan

Mei-Chu Huang (), Chan-Chuan Ting () and Yu-Jia Chen ()
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Mei-Chu Huang: Chung Yuan Christian University, Taiwan
Chan-Chuan Ting: Chung Yuan Christian University, Taiwan
Yu-Jia Chen: Lu-Chu Senior High School, Taiwan

Management and Economics Review, 2018, vol. 3, issue 1, 58-74

Abstract: In this study, we investigate the impact of the conservatism of a company's financial statements on management's motivation to recognize asset impairment, and the impact of accounting conservatism on prior period impairment losses and gains on impairment reversal. The empirical results showed that a higher accounting conservatism level can reduce management manipulation for recognized more impairment losses in the prior period and then more gains on impairment reversal. That is, a higher level of accounting conservatism can reduce prior period impairment losses, recognized by managers, to make reserves to facilitate the recognition of gains on impairment reversal in a later period, to apparently ‘improve' earnings.

Keywords: asset impairment; gains on impairment reversal; accounting conservatism. (search for similar items in EconPapers)
JEL-codes: M1 M2 M4 (search for similar items in EconPapers)
Date: 2018
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