Should asset impairments be included in earnings when evaluating stewardship by management?

Dymock, A; Wells, P; Govendir, B

Should asset impairments be included in earnings when evaluating stewardship by management?

Dymock, A Wells, P

Govendir, B

Permalink

Publisher:: EMERALD GROUP PUBLISHING LTD
Publication Type:: Journal Article
Citation:: Pacific Accounting Review, 2023, 35, (5), pp. 863-880
Issue Date:: 2023-11-06

Closed Access

	Filename	Description	Size
	10-1108_PAR-07-2023-0091.pdf	Published version	206.65 kB	Adobe PDF	View/Open

Copyright Clearance Process

Recently Added
In Progress
Closed Access

This item is closed access and not available.

Full metadata record

Field	Value	Language
dc.contributor.author	Dymock, A
dc.contributor.author	Wells, P https://orcid.org/0000-0001-6822-4826
dc.contributor.author	Govendir, B https://orcid.org/0000-0002-7112-0267
dc.date.accessioned	2024-03-09T01:43:23Z
dc.date.available	2024-03-09T01:43:23Z
dc.date.issued	2023-11-06
dc.identifier.citation	Pacific Accounting Review, 2023, 35, (5), pp. 863-880
dc.identifier.issn	0114-0582
dc.identifier.issn	2041-5494
dc.identifier.uri	http://hdl.handle.net/10453/176393
dc.description.abstract	Purpose: This paper aims to consider the relevance of asset impairments when evaluating stewardship by management. Design/methodology/approach: This paper considers association of earnings (including and excluding asset impairments) with contemporaneous stock returns which are used as a measure of management performance and demonstration of stewardship. Findings: Evidence is provided of earnings including asset impairments (an accounting measure of current measure firm performance) having a higher explanatory power for contemporaneous stock returns (an objective evaluation of current period firm performance) than earnings exclusive of asset impairments. Consistent with this, recognized asset impairments are significantly associated with contemporaneous stock returns. These results occur across firm years generally, as well as for firm years exhibiting indicators of impairment and firm years recognizing asset impairments. Research limitations/implications: This paper adds to the literature providing evidence of asset impairments not being recognised on a timely basis. Additionally, challenges are identified in evaluating the relevance of accounting information for so-called growth firms. Practical implications: These findings support continued recognition of asset impairments in the Statement of Profit or Loss if stewardship is accepted as an objective for financial reporting. It also suggests issues with the recognition of asset impairments that might be addressed by enhanced disclosure. Originality/value: This paper is distinctive in that it considers the relevance of accounting information for evaluating stewardship, as distinct from decision-making. It also considers alternate measure of performance (earnings including and excluding asset impairments) for all firms rather than only those disclosing an alternate measure (i.e. a fair horse race).
dc.language	English
dc.publisher	EMERALD GROUP PUBLISHING LTD
dc.relation.ispartof	Pacific Accounting Review
dc.relation.isbasedon	10.1108/PAR-07-2023-0091
dc.rights	info:eu-repo/semantics/closedAccess
dc.subject	1501 Accounting, Auditing and Accountability
dc.subject.classification	3501 Accounting, auditing and accountability
dc.subject.classification	3502 Banking, finance and investment
dc.title	Should asset impairments be included in earnings when evaluating stewardship by management?
dc.type	Journal Article
utslib.citation.volume	35
utslib.for	1501 Accounting, Auditing and Accountability
pubs.organisational-group	University of Technology Sydney
pubs.organisational-group	University of Technology Sydney/Faculty of Business
utslib.copyright.status	closed_access	*
dc.date.updated	2024-03-09T01:43:20Z
pubs.issue	5
pubs.publication-status	Published
pubs.volume	35
utslib.citation.issue	5

Abstract:

Purpose: This paper aims to consider the relevance of asset impairments when evaluating stewardship by management. Design/methodology/approach: This paper considers association of earnings (including and excluding asset impairments) with contemporaneous stock returns which are used as a measure of management performance and demonstration of stewardship. Findings: Evidence is provided of earnings including asset impairments (an accounting measure of current measure firm performance) having a higher explanatory power for contemporaneous stock returns (an objective evaluation of current period firm performance) than earnings exclusive of asset impairments. Consistent with this, recognized asset impairments are significantly associated with contemporaneous stock returns. These results occur across firm years generally, as well as for firm years exhibiting indicators of impairment and firm years recognizing asset impairments. Research limitations/implications: This paper adds to the literature providing evidence of asset impairments not being recognised on a timely basis. Additionally, challenges are identified in evaluating the relevance of accounting information for so-called growth firms. Practical implications: These findings support continued recognition of asset impairments in the Statement of Profit or Loss if stewardship is accepted as an objective for financial reporting. It also suggests issues with the recognition of asset impairments that might be addressed by enhanced disclosure. Originality/value: This paper is distinctive in that it considers the relevance of accounting information for evaluating stewardship, as distinct from decision-making. It also considers alternate measure of performance (earnings including and excluding asset impairments) for all firms rather than only those disclosing an alternate measure (i.e. a fair horse race).

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/176393