The Contagion Effects Of Listed Companies Assets Impairment

From the date of birth, stock market has become the most effective and important channel for corporate financing. It not only affects the healthy development of enterprises, but also greatly affects the development of the entire national economy. Disclosure of accounting information occupies a very important position in this market, because the corporate information transfer is viewed as a signal that investors rushed to chase, which also becomes an important basis for investors to make investment decisions. Significant impairment of assets information is an outside accounting signal transmission, which shows the possible value of future changes in assets of the company to the market. Enterprise Accounting Standards No.8"Impairment of Assets" clearly states that when the company experiences a serious impairment of assets, the accountant shall disclose information related to the impairment of assets in the note, so the investors or other stakeholders can understand if the company’s assets are in a significant impairment situation from the interpretation of the note.Specifically, the company which has significant asset impairment disclosure of information means transferring the three pieces of information to the outside, namely the decrease of the asset value, the changing of earnings management and willingness and ability of the company’s management policy. If investors believe that the impairment of assets passing out some positive information of the company, the stock price will follow up; but if investors believe that the impaired assets are passed out of the bad news, the stock price will fall. Under the assumption that the securities market is completely effective, stock prices will immediately reflect public information’s influence on the value of the company. When delivering the accounting information of assets impairment provision, the public will be able to get a large number of real information, and stock prices can fully reflect the message of the declined assets, at this moment the security price is associated with impairment of information disclosure and fluctuating in the stock market.Through the related literature on impairment of assets, it mainly divided into two parts, which is exploring the motivation and earnings management of impaired assets, and the market reaction after the disclosure of assets impairment. In this paper, we take a company that discloses significant assets impairment as a starting point, hoping to come up with further problem about market reaction related to assets impairment. The purpose of this paper is trying to achieve, on the one hand, that if there are existing contagion effects when companies announce assets impairment, that is, when a company announce impairment of assets, in addition to its share price will be affected, it’s bad news may change investor’s perception of the same industry companies that don’t mention the assets impairment, and lead their share prices to the same changes. On the other hand, we also hope to further explore the conditions of assets impairment to result in stock price falling of same industry companies that don’t mention the assets impairment, that is, whether the characteristics of different companies will strengthen or weaken the contagion effect of assets impairment information.In order to investigate the contagion effects of assets impairment, we firstly use the event study method to discuss, in point of assets impairment, the share price movements and direction of assets impairment companies and same industry companies that don’t mention the assets impairment, and through the significant test to determine if the "abnormal returns" is significant. If the stock reactions of assets impairment companies and other same industry companies are significantly negative, as expected, then it means the contagion effects of assets impairment exist, and we’ll re-use regression analysis method to analyze the relevance of abnormal returns and company characteristics.In this paper, we use the market model to calculate the expected return of the assets impairment company and same industry company that doesn’t mention the assets impairment, and thus calculating the cumulative abnormal returns during the event. We use the2011-2012A-share listed company on the Main Board as empirical research data, and the results confirmed the contagion effects of assets impairment firstly, indicating that if there have been significant disclosure of assets impairment, it will not only affect the company own shares, also affect investors’ expectations for the entire industry, often resulting in the share price dropping of same industry companies. The contagion effects are obvious especially in the first, third and fourth quarter, and particularly in the manufacturing, real estate, as well as comprehensive industry.When the research shows the contagion effects of assets impairment exist, and then the next step is to continue with the method of multiple regression analysis to discuss the factors of affecting contagion effects. The conclusion shows that, from the assets impairment company’s perspective, the more assets impairment loss, or the more companies that disclose impaired assets in an industry, the abnormal returns of same industry companies that don’t mention the assets impairment are smaller, that is more likely to cause the share price of these companies to drop. From the same industry company’s perspective, the more the fixed assets or long-term equity investments of the company itself, the company’s cumulative abnormal returns will be smaller, that is, it will enhance contagion effects of assets impairment. The more the ROE, the greater the company’s cumulative abnormal returns, indicating that this would weaken the contagion effects of assets impairment.Finally, we believe that research not only has a significant effect in the academic sense, but also helps to enhance protections toward investors and improve the quality of information disclosure of listed companies, as well as help securities regulators develop policies. For investors, they should focus on the assets impairment of listed companies and to discern implicit message content, to make the right investment decisions; for listed companies, they should continuously improve the quality of financial reporting, timely and accurately announce the company’s assets information, improving corporate earnings, to enhance the confidence of investors from other areas; for securities regulators, the Commission should get a more in-depth understanding of the market impact about assets impairment in order to establish a more reasonable information disclosure system, to improve the information quality of the security market.