Empirical Research On Allowances For Assets Impairment Of Loss Listed Companies In China

In the wake of the transition from the planned economy to market economy and the further development of market economy and securities markets, assets depreciation reserves has evolved as one focus of accounting field.In accordance with prudent principles and authenticity of accounting, on February 15, 2006, the Ministry of Finance issued a new "Enterprise Accounting Standards", adding the"The eighth Accounting Standard for Business Enterprises—assets depreciation". Three years of consecutive losses of a listed company lead to the suspension of stock market. If during the grace period of one year, the listed company is still not profitable, the listing will be terminated. If a listed company is labeled as ST, the difficulty of financing will deepen and the cost of capital will rise, even to suspend the listing. On the condition of the rarity of "shell" resources, this situation points to the forfeit of shell resource. As to a company which faces deficit in the first year, making profit and preventing continuous losses are an important goal. If a company still suffers the losses in the second year, the third year cannot loss earnings anyway. In order to achieve the above objectives, managers will adopt the earnings management to avoid loss or three years'consecutive losses and delisting or suspension of licenses as far as possible. Therefore, the loss-making companies have drives to convert defeat into victory. For the sake of analyzing the influence of the implication of new criteria on assets depreciation, on the basis of assets depreciation theory, this paper provides the assumptions, establishes an empirical analysis of a multiple regression model, and employs the paired T test and W test to verification. The investigation of the difference in earnings management of listed companies aims to determine whether the new criteria can inhibit listed companies from earnings management behavior through assets depreciation, and thus, provides a reference for whether new accounting standards can block the earnings management channels.At first, this paper illustrates the development of our accounting policies concerning the assets depreciation and the relevant provisions of assets depreciation. In addition, this paper analyzes the differences in accounting standards of original accounting system, new accounting system and international accounting system.Literature review sums up the theoretical results of domestic and foreign experts and scholars in the field of earnings management and assets depreciation, which lays a solid foundation for the follow-up research and provides two corresponding assumptions. Taking advantage of annual report data of loss-making listed companies in 2005 and 2007, this paper conducts empirical research on assets depreciation behavior of listed companies that suffer two consecutive years of losses. Choosing the A-share listed companies that undergo two consecutive years of losses in Shanghai and Shenzhen stock market as samples, this paper selects the data in 2005 and 2007, owing to the fact that 2006 was the first year after the reform and the new guidelines came into effect on January 1, 2007, which may lead to the deviation of results. So we only use the listed companies that confront losses in 2005 and 2007 as research samples.In multiple regression models, this paper selects several indicators as the independent variables that can reflect the solvency ability and affect the status of assets depreciation, such as quick ratio, current ratio, asset-liability ratio; there are also several independent variables reflecting the operating ability and profitability and playing a role in assets depreciation, such as the inventory turnover rate, inventory turnover ratio, fixed asset turnover ratio and total asset turnover ratio.Choosing the assets depreciation rate as the dependent variable and time and category as dummy variables, this paper makes use of descriptive statistics analysis to study the provision situation of assets depreciation of listed companies. Through the analysis, we obtain the preliminary conclusion that companies having low financial risk tend to face the relatively small possibility of earnings management. They do not have to decrease the assets depreciation provision and increase current profits. Multiple regression tests examine the relationship between selected dependent variables and dummy variables, which point to the fact that the impact of independent variable on assets depreciation rate is significant and can be a very good explanation of the dependent variable. Selecting the year and categories as dummy variables, we find that dummy variable selection possesses a high accuracy rate and forecasting symbol is in line with the results, which signify that, under certain circumstances, the selection of year and type have something to do with assets depreciation reversal and assets depreciation provision. Then, we introduce the paired T test and Wilcox rank test (hereinafter referred to as W test) to test the difference of assets depreciation provisional rate between samples in 2005and 2007. The conclusions suggest that assets depreciation in 2005 is higher than that of 2007. The annual levels of assets depreciation have significant differences and in the context ofα= 0.05, they are all significant. After the implementation of the new guidelines, financially distressed listed company adopt different assets depreciation guidelines prior to before. New guidelines bring about the earnings management behavior of listed companies, by means of assets depreciation. The implementation of new guidelines, to a certain extent, curbs the assets depreciation provision.