The Right Time For a Big Bath: Asset Impairment Recognition in Earnings Management

• Autorzy: Paweł Mielcarz , Dmytro Osiichuk , Inna Tselinko
• Języki publikacji: EN

Abstrakty

EN

Purpose - The article investigates the patterns of asset impairment recognition in search of signs of "big bath" earnings management practices across an internationally diversified sample of public companies. It also elucidates the incentives that may underlie such practices and explores possible safeguards embedded in the existing corporate governance mechanisms.

Design/methodology/approach - The article applied static panel and binary logit models to an international firm-level panel dataset of 1045 public companies observed between 2003 and 2018.

Findings - Our empirical results suggest that recognition of asset impairment has no determinate impact on earnings volatility. Investigating the possibility of "big bath" earnings management practices, the authors found no impact of asset impairment recognition on total senior executive compensation in firms, which pay performance-based remuneration. The quality of corporate governance has appeared to impact the firms' intertemporal proclivity to recognize asset impairment with those having the more entrenched and management-controlled boards being more likely to time impairment recognition by delaying it during exceptionally good and exceptionally bad years. While generally unlikely, recognition of asset impairment in a period with a recorded negative operating performance is found to be closely associated with key executive departures.

Originality/value - The article corroborates the salient role of corporate governance mechanisms in shaping the intertemporal patterns of asset impairment recognition. The possible remedies to the phenomenon should be derived therefrom.
(original abstract)

Słowa kluczowe

EN

Earnings management; Asset value; Public companies; Corporate governance; Logit model

PL

Zarządzanie zyskami; Wartość aktywów; Spółki publiczne; Ład korporacyjny; Model logitowy

• Czasopismo: Central European Management Journal
• Rocznik: 2023
• Tom: 31
• Numer: nr 2
• Strony: 189--206

Twórcy

autor

Paweł Mielcarz

• Kozminski University, Warsaw, Poland

autor

Dmytro Osiichuk

• Kozminski University, Warsaw, Poland

autor

Inna Tselinko

• J.P. Morgan Poland, Warsaw, Poland

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• Further reading
• Gordon, E. A., & Hsu, H. T. (2017). Tangible long-lived asset impairments and future operating cash flows under US GAAP and IFRS. The Accounting Review, 93(1), 187-211. doi: 10.2308/accr-51815.
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Identyfikatory

DOI

10.1108/CEMJ-12-2021-0156