ABSTRACT: Understanding the incentives for and consequences of accounting method choices is important to various constituents of accounting. In 1998, a Chinese accounting regulation allowed listed companies to voluntarily write‐down assets through their income statements. The regulation was amended in 1999 to require all companies to write‐down assets, with a retroactive adjustment of pre‐1998 asset impairment to the beginning equity. These events allow us to unambiguously identify a test sample that voluntarily wrote down assets in 1998, and a control sample that suffered from asset impairment but chose not to write‐down. This research setting is free from many problems that have been identified in the asset write‐down literature. Overall, we find that the voluntary asset write‐downs have a positive valuation effect. While recognizing the possibility of alternative explanations, we believe our results, taken together, are more consistent than others, with the voluntary write‐downs being a signal of the potential for performance improvement. We provide evidence consistent with this signaling explanation. This study adds additional evidence to the accounting choice literature by taking advantage of a unique research opportunity in China and adopting a broad approach to examining both the incentives for and consequence of voluntary asset write‐downs.
Skip Nav Destination
Article navigation
Spring 2004
Research Article|
January 01 2004
Incentives for and Consequences of Initial Voluntary Asset Write‐Downs in the Emerging Chinese Market
Charles J. P. Chen, Associate Professor;
Charles J. P. Chen, Associate Professor
City University of Hong Kong.
Search for other works by this author on:
Shimin Chen, Associate Professor;
Shimin Chen, Associate Professor
University of Louisiana at Lafayette.
Search for other works by this author on:
Xijia Su, Associate Professor;
Xijia Su, Associate Professor
City University of Hong Kong.
Search for other works by this author on:
Yuetang Wang, Professor
Yuetang Wang, Professor
Nanjing University.
Search for other works by this author on:
Online ISSN: 1558-8025
Print ISSN: 1542-6297
American Accounting Association
2004
Journal of International Accounting Research (2004) 3 (1): 43–61.
Citation
Charles J. P. Chen, Shimin Chen, Xijia Su, Yuetang Wang; Incentives for and Consequences of Initial Voluntary Asset Write‐Downs in the Emerging Chinese Market. Journal of International Accounting Research 1 January 2004; 3 (1): 43–61. https://doi.org/10.2308/jiar.2004.3.1.43
Download citation file:
Pay-Per-View Access
$25.00