Shanghai A-share Listed Company's Assets For Impairment Empirical Research

In December 2000, the Ministry of Finance issued Enterprise Accounting System, which required Chinese-listed firms to set up loss provisions for the eight assets including short-term investment from year 2001, the purpose which is to improve the quality of financial data. Since the "New Four Provisions" policy is adopted, how do firms adopt the new policy of the asset impairment? What is the impact of these reforms on firms' financial statements? How do firms respond to the new policies? All these questions deserve the attention of related departments. Based on the study of asset write-downs theory, this paper examines the adoption conditions and discretionary behavior of Shanghai-listed firms in 2001. Then this paper draws conclusions as follows: The adoption of the eight items of provision policy has moved the book value of assets closer to their market values, and it improves the quality of financial data. However, retroactive adjustments are adopted to reduce the negative impact of reform on the firms' financial performance. Furthermore, some firms apply excessive retroactive adjustments to improve current income. To some extent, write-downs have been driven by asset impairment, but managers' incentives that cater for the requirements of government regulations also play a key role. In the end, this paper brings forward suggestions as follows: to improve the accounting system further; to create internal and external conditions needed to adopt asset impairment policy; to strengthen the external audit and securities business regulations.