Impairment losses: causes and impacts

Fernandes, Joaquim Sant’Ana; Gonçalves, Cristina; Guerreiro, Cristina; Pereira, Luis Nobre

doi:10.7819/rbgn.v18i60.2300

Abstract

Purpose:

To analyze recognition of impairment losses in tangible and intangible assets, and their relevance to investors in companies listed in the Lisbon and Madrid Stock Exchange (2007-2011).

Methodology:

Quantitative analysis of a panel data sample of 80 companies listed in the Lisbon and Madrid Stock Exchange (2007-2011) was carried out. Panel data linear and non-linear regression models were estimated.

Findings:

We found that the amount of impairment losses showed an upward trend, and that these losses are most significant among intangibles, especially goodwill (GW). We also found that the probability of recognition of impairment losses is positively influenced by the dimension of entities and negatively by market value (p < 0.10). Portuguese export-oriented companies have a higher probability of not recognizing impairments. However, Portuguese companies with higher market values have greater probability of recognizing impairment losses, contrary to the sample as a whole, in which the relationship is negative (p < 0.10). The results also suggest that there is a smoothing effect on results because of impairments, especially in IBEX35 companies. As to the relevance of impairment losses to market value, we confirm a significant negative relationship, in line with conclusions from previous studies.

Originality/value:

This study contributes to the introduction of the cultural factor in this analysis, highlighting the differentiated behaviors between Portuguese and Spanish companies.

Keywords:
Tangible assets; intangible assets; impairment; market value

Resumo

Objetivo:

Analisar o reconhecimento das imparidades nos ativos fixos tangíveis e intangíveis e sua relevância para os investidores nas empresas cotadas nas bolsas de Lisboa e de Madri.

Metodologia:

Suporta-se em uma análise quantitativa de dados sobre uma amostra de 80 empresas com títulos cotados nas bolsas de Lisboa e de Madri (2007-2011). Foram estimados modelos de regressão linear e não linear para dados em painel.

Resultado:

Constatou-se que o valor de imparidades teve uma tendência crescente e que essas perdas são as mais significativas nos intangíveis (em particular no goodwill). Comprovou-se que a probabilidade de reconhecimento das imparidades é influenciada positivamente pela dimensão das entidades e negativamente pelo valor de mercado (p < 0,10). As entidades portuguesas orientadas para a exportação têm uma maior probabilidade de não reconhecer imparidades, mas as que apresentam valores de mercado superior têm maior probabilidade de reconhecê-las. Esse comportamento contraria o manifestado pela amostra, em que essa relação é negativa (p < 0,10). Os resultados também sugerem que existe efeito de alisamento dos resultados por via das imparidades, sendo ele mais acentuado nas entidades do IBEX35. Quanto à relevância da imparidade para o valor de mercado, confirma-se uma relação negativa significativa, reforçando as conclusões de estudos anteriores.

Contribuições:

Esse estudo introduz o fator cultural na análise do reconhecimento das perdas por imparidade, destacando-se comportamentos distintos entre entidades portuguesas e espanholas.

Palavras-chave:
Ativos fixos tangíveis; ativos intangíveis; imparidade; valor de mercado

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Full text available only in PDF format.

Referências

AbuGhazaleh, N. M., Al-Hares, O. M., & Haddad, A. E. (2012). The value relevance of goodwill impairments: UK evidence. International Journal of Economics and Finance, 4(4), 206-216.
Albuquerque, F., Almeida, C. A., & Quirós, J. (2011). The impairment losses in non-financial assets: Evidence from the Portuguese stock exchange. International Journal of Business Research, 11(2), 42-52.
Balsam, S. (1998). Discretionary accounting choices and CEO compensation. Contemporary Accounting Research, 15(3), 229-252.
Bartov, E. (1993). The timing of asset sales and earnings manipulation. The Accounting Review, 68(4), 840-855.
Brochet, F., & Welch, K. (2011). Top executive background and financial reporting choice: The case of goodwill impairment [Working Paper No. 11-088]. Harvard Business School Recuperado de http://www.hbs.edu/faculty/Publication%20Files/11-088.pdf
» http://www.hbs.edu/faculty/Publication%20Files/11-088.pdf
Cameron, A. C., & Trivedi, P. K. (2010). Microeconomics using Stata College Station, TX: Stata Press.
Campbell, J. Y., & Shiller, R. J. (1998). Valuation ratios and the long-run stock market outlook.The Journal of Portfolio Management, 24(2), 11-26.
Castro, E. N. (2012). A manipulação de resultados em Portugal através do Goodwill(Dissertação de Mestrado). Instituto Politécnico do Porto, Porto, Portugal.
Choi, W.W., Kwon, S. S., & Lobo, G. J. (2000). Market valuation of intangible assets. Journal of Business Research, 49(1), 35-45.
Cormier, D., Magnan, M., & Morard, B. (2000). The contratual and value relevance of reported earnings in a dividend-focused environment. The European Accounting Review, 9(3), 387-417.
Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. The Accounting Review,70(2), 193-225.
Elliott, J., & Hanna, J. (1996). Repeated accounting write-offs and the information content of earnings. Journal of Accounting Research, 34(Suppl.), 135-155.
Elliott, J., & Shaw, W. (1988). Write-downs as accounting procedures to manage perceptions. Journal of Accounting Research, 26(Suppl.), 91-119.
Fernandes, J. S., & Gonçalves, C. I. (2014). A relevância do goodwill e respetivas imparidades para o valor de mercado das empresas com títulos cotados: O caso da Euronext Lisbon. Revista Contabilidade e Gestão, 15, 117-150.
Feuilloley, M., & Sentis, P. (2006). Pertinence économique de la norme IFRS 3 - phase 1 - Une analyse des dépréciations du goodwill par les entreprises françaises sur la période 2000-2004. Comptabilite, Controle, Audit et Institution(s) Recuperado de https://halshs.archives-ouvertes.fr/halshs-00548081/document
» https://halshs.archives-ouvertes.fr/halshs-00548081/document
Francis, J., Hanna, J. D., & Vincent, L. (1996). Causes and effects of discretionary asset write-offs. Journal of Accounting Research, 34(Suppl.), 117-134.
Jennings, R., Robinson, J., Thompson, R., & Duvall, L. (1996). The relationship between accounting goodwill numbers and equity values. Journal of Business, Finance & Accounting, 23(4), 513-533.
Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13(4), 365-383.
Kvaal, E. (2005). Topics in accounting for impairment of fixed assets (Series of Dissertations 3/2005). BI Norwegian School of Management Recuperado de http://web.bi.no/forskning/papers.nsf/0/6f69655decead80cc125705e0049b44b/$FILE/05-03-kvaal.pdf
» http://web.bi.no/forskning/papers.nsf/0/6f69655decead80cc125705e0049b44b/$FILE/05-03-kvaal.pdf
Lapointe-Antunes, P., Cormier, D., & Magnan, M. (2009). Value relevance and timeliness of transitional goodwill-impairment losses: Evidence from Canada. The International Journal of Accounting, 44(1), 56-78.
Li, Z., Shroff, P. K., Venkatamaran, R., & Zhang, I. X. (2011). Causes and consequences of goodwill impairment losses. Review ofAccounting Studies, 16(4), 745-778.
Oliveira, L., Rodrigues, L. L., & Craig, R. (2010). Intangible assets and value relevance: Evidence from the Portuguese stock exchange. The British Accounting Review, 42(4), 241-252.
Scott, W. R. (2003). Financial accounting theory. New Jersey: Prentice Hall
Shen, P. (2000). The P/E ratio and stock market performance (Federal Reserve Bank of Kansas City). Economic Review, Fourth Quarter, 23-36.
Strong, J. S., & Meyer, J. R. (1987). Asset writedowns: Managerial incentives and security returns. The Journal of Finance,42(3), 643-661.
Yanamoto, T. (2008). Assets impairment accounting and appraisers: Evidence from Japan. The Appraisal Journal, 76(2), 179-188.
Watts, L., & Zimmerman, L. (1986). Positive accounting theory New Jersey: Prentice-Hall.
Wines, G., & Ferguson, C. (1993). An empirical investigation of accounting methods for Goodwill and identifiable intangible assets: 1985 to 1989. Abacus, 29(1), 90-105.
Xu, W., Anandarajan, A., & Curatola, A. (2011). The value relevance of Goodwill impairment. Research in Accounting Regulation,23(2), 145-148.
Zucca, L. J., & Campbell, D. R. (1992). A closer look at discretionary writedowns of impaired assets. Accounting Horizons, 6(3), 30-41.

9
Evaluation process: Double Blind Review

Supporting Agencies:: This paper is financed by National Funds provided by FCT- Foundation for Science and Technology through project UID/SOC/04020/2013.

Contribution of each author:

Publication Dates

Publication in this collection
Apr-Jun 2016

History

Received
17 Dec 2014
Accepted
31 May 2016

Este é um artigo publicado em acesso aberto sob uma licença Creative Commons

[1] AbuGhazaleh, N. M., Al-Hares, O. M., & Haddad, A. E. (2012). The value relevance of goodwill impairments: UK evidence. International Journal of Economics and Finance, 4(4), 206-216.

[2] Albuquerque, F., Almeida, C. A., & Quirós, J. (2011). The impairment losses in non-financial assets: Evidence from the Portuguese stock exchange. International Journal of Business Research, 11(2), 42-52.

[3] Balsam, S. (1998). Discretionary accounting choices and CEO compensation. Contemporary Accounting Research, 15(3), 229-252.

[4] Bartov, E. (1993). The timing of asset sales and earnings manipulation. The Accounting Review, 68(4), 840-855.

[5] Brochet, F., & Welch, K. (2011). Top executive background and financial reporting choice: The case of goodwill impairment [Working Paper No. 11-088]. Harvard Business School Recuperado de http://www.hbs.edu/faculty/Publication%20Files/11-088.pdf
» http://www.hbs.edu/faculty/Publication%20Files/11-088.pdf

[6] Cameron, A. C., & Trivedi, P. K. (2010). Microeconomics using Stata College Station, TX: Stata Press.

[7] Campbell, J. Y., & Shiller, R. J. (1998). Valuation ratios and the long-run stock market outlook.The Journal of Portfolio Management, 24(2), 11-26.

[8] Castro, E. N. (2012). A manipulação de resultados em Portugal através do Goodwill(Dissertação de Mestrado). Instituto Politécnico do Porto, Porto, Portugal.

[9] Choi, W.W., Kwon, S. S., & Lobo, G. J. (2000). Market valuation of intangible assets. Journal of Business Research, 49(1), 35-45.

[10] Cormier, D., Magnan, M., & Morard, B. (2000). The contratual and value relevance of reported earnings in a dividend-focused environment. The European Accounting Review, 9(3), 387-417.

[11] Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. The Accounting Review,70(2), 193-225.

[12] Elliott, J., & Hanna, J. (1996). Repeated accounting write-offs and the information content of earnings. Journal of Accounting Research, 34(Suppl.), 135-155.

[13] Elliott, J., & Shaw, W. (1988). Write-downs as accounting procedures to manage perceptions. Journal of Accounting Research, 26(Suppl.), 91-119.

[14] Fernandes, J. S., & Gonçalves, C. I. (2014). A relevância do goodwill e respetivas imparidades para o valor de mercado das empresas com títulos cotados: O caso da Euronext Lisbon. Revista Contabilidade e Gestão, 15, 117-150.

[15] Feuilloley, M., & Sentis, P. (2006). Pertinence économique de la norme IFRS 3 - phase 1 - Une analyse des dépréciations du goodwill par les entreprises françaises sur la période 2000-2004. Comptabilite, Controle, Audit et Institution(s) Recuperado de https://halshs.archives-ouvertes.fr/halshs-00548081/document
» https://halshs.archives-ouvertes.fr/halshs-00548081/document

[16] Francis, J., Hanna, J. D., & Vincent, L. (1996). Causes and effects of discretionary asset write-offs. Journal of Accounting Research, 34(Suppl.), 117-134.

[17] Jennings, R., Robinson, J., Thompson, R., & Duvall, L. (1996). The relationship between accounting goodwill numbers and equity values. Journal of Business, Finance & Accounting, 23(4), 513-533.

[18] Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13(4), 365-383.

[19] Kvaal, E. (2005). Topics in accounting for impairment of fixed assets (Series of Dissertations 3/2005). BI Norwegian School of Management Recuperado de http://web.bi.no/forskning/papers.nsf/0/6f69655decead80cc125705e0049b44b/$FILE/05-03-kvaal.pdf
» http://web.bi.no/forskning/papers.nsf/0/6f69655decead80cc125705e0049b44b/$FILE/05-03-kvaal.pdf

[20] Lapointe-Antunes, P., Cormier, D., & Magnan, M. (2009). Value relevance and timeliness of transitional goodwill-impairment losses: Evidence from Canada. The International Journal of Accounting, 44(1), 56-78.

[21] Li, Z., Shroff, P. K., Venkatamaran, R., & Zhang, I. X. (2011). Causes and consequences of goodwill impairment losses. Review ofAccounting Studies, 16(4), 745-778.

[22] Oliveira, L., Rodrigues, L. L., & Craig, R. (2010). Intangible assets and value relevance: Evidence from the Portuguese stock exchange. The British Accounting Review, 42(4), 241-252.

[23] Scott, W. R. (2003). Financial accounting theory. New Jersey: Prentice Hall

[24] Shen, P. (2000). The P/E ratio and stock market performance (Federal Reserve Bank of Kansas City). Economic Review, Fourth Quarter, 23-36.

[25] Strong, J. S., & Meyer, J. R. (1987). Asset writedowns: Managerial incentives and security returns. The Journal of Finance,42(3), 643-661.

[26] Yanamoto, T. (2008). Assets impairment accounting and appraisers: Evidence from Japan. The Appraisal Journal, 76(2), 179-188.

[27] Watts, L., & Zimmerman, L. (1986). Positive accounting theory New Jersey: Prentice-Hall.

[28] Wines, G., & Ferguson, C. (1993). An empirical investigation of accounting methods for Goodwill and identifiable intangible assets: 1985 to 1989. Abacus, 29(1), 90-105.

[29] Xu, W., Anandarajan, A., & Curatola, A. (2011). The value relevance of Goodwill impairment. Research in Accounting Regulation,23(2), 145-148.

[30] Zucca, L. J., & Campbell, D. R. (1992). A closer look at discretionary writedowns of impaired assets. Accounting Horizons, 6(3), 30-41.

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