감액손실의 반복적 인식과 기업특성 및 주가관련성

This paper examines value relevance of subsequently repeated write-offs relative to initial write-offs of long-lived assets. Specifically, we empirically investigate how firms are characterized when they report write-offs subsequently after initial write-offs and whether market participants evaluate the write-offs differentially with respect to frequency of their recognition. Under current GAAP, firms are required to assess and estimate possible impairment losses on assets when it is likely that future economic benefit expected from an asset is considerably lower than its carrying amount due to technological obsolescence and/or rapid declines in market value. Given that it is so difficult to obtain accurate estimate of future economic benefits from an asset, it is not unusual that managers have substantial degree of discretion in determining timing and amount of write-offs. Further, external auditors will take more conservative and extensive audit procedures in verifying write-offs. Thus, the frequency of reported write-offs can have a distinguishable effect on usefulness of accounting for asset impairment. Prior studies have documented that market participants tend to evaluate write-offs of long-lived assets unfavorably and that the degree of their unfavorable evaluation depends on the nature of write-offs as well as the underlying financial characteristics of firms reporting write-offs. When a firm recognizes write-offs for the first time, market participants will expect future economic benefits from the asset being written off to be lowered so that their evaluation of initial write-offs will be unfavorable. However, as firms report write-offs repeatedly, successive write-offs are likely to be evaluated less unfavorably because market participants pay less attention to successive write-offs than to initial write-offs or because they interpret the successive write-offs as consequence of strengthened conservatism. Thus, negative effect of successive write-offs could be mitigated. The final sample consists of 251 non-banking firm-years with December fiscal year listed over Korean Stock Exchange for 2000-2003. First, we find that there is a gradual increase in the incidence of firms reporting write-offs over the sample period. And 63% of the sample firm-years (158 firm-years) report write-offs for the first time and 37% of them (93 firm-years) report write-offs repeatedly. Firms reporting write-offs are belonging to such industries as chemical products (23.5%), electronics (14.7%), and construction (7.6%) that own larger plant and equipment. Second, we find that there is significantly positive association between the frequency of reporting write-offs and financial performance and size of firms. But there is significant negative association between the frequency of reporting write-offs and auditors' size. This result indicates that firms repeat recognition of write-offs when they are better performers, large, and audited by larger auditors such as Big 4 auditors that are assumed to provide high-quality audit services. Third, we find that pricing multiples on successive write-offs are significantly larger (less negative or more positive) than those on initial write-offs and that even positive pricing multiples are obtained for firm-years of reporting write-offs more than three times. This shows that market participants evaluate repeated write-offs less unfavorably than initial write-offs and that unfavorable evaluation of write-offs is significantly mitigated as firms report write-offs repeatedly. Prior research in the area of asset impairment has focused on managerial discretion and audit quality. But this study extends the literatures on recognition of the write-offs by identifying economic causes of write-offs such as firm size, financial performance, and frequency of recognizing write-offs. Given that frequency and amount of write-offs are increasing, this issue is of particular interests to information users including managers, investors, auditors, and regulators. This study will contribute to enhancing our understanding of distinction of financial characteristics and value relevance with respect to frequency of write-offs, being helpful for economic decisions by managers or investors. And it will help regulators or policy makers to decide what are weak aspects of current GAAP on accounting for write-offs and how to improve overall usefulness of information on impairment losses.