The Effects of Impairment Recognitions and Reversals on Earnings Response Coefficient
Author
Abstract
This paper aims to investigate how the reversals of impairments affect the earnings response coefficient (ERC). Those firms which recognize asset impairments in a quarter then reverse the impairments in the subsequent and reverse the impairments in a quarter then recognize asset impairments in the subsequent will be examined. This paper will explore whether those firms have lower or higher ERC. The empirical results indicate that firms will improve the informativeness of earnings in order to reflect the true values of assets when they change impairment recognitions and reversal in a year, which supports our hypothesis. Our results also show that firms which recognize asset impairments in a quarter then reverse the impairments in the subsequent have higher ERC than firms which only recognize asset impairments in a year. However, we don't find the same result in firms which reverse the impairments.
Key Words
Asset Impairments, Reversals of Impairments, Earnings Response Coefficient
