The Effect of Market Perception Management on the SFAS No. 35: The Analysis of Early Adoption
Institute of Business and Management
|關鍵字:||資產減損;35號公報;Asset Impairments;SFAS No. 35|
The Statement of Financial Accounting Standards No. 35-”Recognition of Asset Impairments” (hereafter, SFAS No. 35)-has been adopted since the financial statements ended on December 31, 2005, while companies could choose to early adopt to the financial statements ended on December 31, 2004. The purpose of this research is to examine whether companies would early adopt SFAS No. 35 to accomplish the market perception management. Specifically, there are four research questions in this study. First, whether markets under-reflect to the persistency of earnings before impairment for early adoption companies? Second, whether the recognition of asset impairments would improve the phenomenon of the market's under-reflection to earnings persistency? The first two research questions imply the assumption that companies use early adoption of SFAS No. 35 as a mechanism of signaling. However, a useful mechanism of signaling has to meet two requirements. The first one is that the company has good news in the future and the other is that the company has to bear the costs from this mechanism. Thus, the third research question of this study is to examine whether the recognition of asset impairments would convey the news of increasing future earnings. And finally, whether the impairment percepted by the market is negatively related to impairments recorded in the book? The result of the research shows that the companies with early adoption have the phenomenon of the market's under-reflection to earnings persistency. But after recognizing asset impairments, the market fully reflects to the impairment information. In addition, the impairment can forecast the future earnings and is negatively related to the impairment percepted by the market. In conclusion, in order to manage market perception, the company with its value underestimated would signal that future earnings is increasing, by early adopting SEAS No. 35 in 2004, and thus the extent of the market's under-reaction to earnings persistency is reduced.
Journal of Management and Systems
|Appears in Collections:||Journal of Management and System|
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