Determinants of impairment losses recognition and measurement on the example of companies listed on Warsaw Stock Exchange
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We have carried out empirical research into factors determining recognition of impairment of non-financial fixed assets. Data are collected from consolidated fi-nancial statements of companies listed on the Warsaw Stock Exchange. In 2008, 61 companies disclosed information about fixed assets impairment. We have analysed factors influencing both the amount of impairment loss and the probability of dis-closure. Univariate analysis is carried out using the group of companies having disclosed information on asset write-downs and a control group. In 2008 we ob-serve a significant migration of companies into the group of companies with asset impairment disclosure, associated with a very weak adverse direction. We found evidence that significant factors leading to assets write-downs are as follows: high-er balance-sheet total, better audit quality, changes in board of directors, higher cash-flow from operating activities, lower difference between earnings and cash-flow. It is the qualitative factors that most strongly influence the probability of write-downs. The financial performance of companies recognizing impairment loss-es is generally not significantly different from that of the control group. Companies disclosing impairment probably follow more conservative accounting policy. The difference between earnings and cash-flow as far as scaled by total assets is signifi-cantly lower than for the control group. General conclusions of the univariate anal-ysis are confirmed by the multivariate approach. Two variables explain probabilityof disclosing impairment: recurrence of write-downs and changes in Board of Direc-tors with positive estimates of coefficients. In accordance with logit regression the size of a company is positively correlated with probability of impairment losses recognition. There is a very strong interaction effect among the variables: ROA, operating cash flow, total assets as far as probability of recognizing impairment is concerned.The next step in the research is analysis of factors influencing the magnitude of fixed assets write-downs. Univariate analysis provided evidence that the amount of impairment is negatively correlated with the following variables: net changes in ROI in 2006–2008, sales dynamics (2007–2008), total assets and current liquidity ratio. We found no evidence that the magnitude of asset impairment is linked with qualitative variables, influencing the probability of write-downs. Nonlinear regres-sion is used to describe the relationship between the magnitude of write-downs (log of write-downs scales by total assets) and factors conditioning it. Three estimates of coefficient are statistically significant: log of revenue index (2007–2008) log of current liquidity ratio, log of net change of ROI (2006–2008). All three estimates are negatively linked.
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