A Research On Behavior, Motivations And Market Reaction Of Assets Impairment Of Listed Companies

The business environment of the enterprise faces to more mad more risk and uncertainty in the fierce competition in the information technology and knowledge economy era. Accounting need to reform to adapt to new social economic demand in order to reflect the value of assets. So assets impairment accounting begins. China’s assets impairment accounting produces in early1992, has been developing for20years up to now. It has grown out of nothing, from two items to four items, finally to eight items and on February15.2006, China issued Accounting Standard for Business Enterprise No.8:Asset Impairment Accounting. However the accounting standard provides opportunity to earnings management when it carries out in China. Through the existed literature we can see some listed companies in China use assets impairment to control profit to make an enormous effect on the development of capital market and investors’ profit.The New CAS No.8cancelled the reverse of the impairment of long-term assets, which aimed to compress the scope of earning management. So the New CAS has been implemented for nearly6years, the policy effect is this article’s focus.Market reaction depends on the value relevance of the financial report and information transparency. The main purpose of assets impairment is to reflect the true value of assets, increase information transparency and the value relevance of the financial report and improve the decision usefulness of the financial information. Inspecting assets impairment accounting from the angle of market reaction makes a great significance to promote investors’ confidence and development of capital market. On the other side, the New CAS cancelled the statement of asset reserve. Will the cancel reduce the information content of financial report?So the article analysis and compare the behavior and motivations of assets impairment of listed companies from2001to2010firstly, then study will the change of disclosure forms reduce the information content of financial report, analysis value relevance of different type of assets impairment at last.The conclusions of this paper are including following main points:(1) The behavior of assets impairment in China reflects the change of business status. Listed companies have opportunity to earning management by short-term assets, the article confirms the behavior of reversing the loss profit by assets impairment.(2)Assets impairment has value relevance; it is much more obvious in the New Standards stage, long-term assets impairment has much more value relevance in the New Standards stage.(3)The total amount of assets impairment can provide much information than the details, the cancel in2006increase the information content of financial report.Based on the above analysis and conclusions, the article puts forward relevant suggestions for reference to relevant institutions.