An Empirical Test of Stock Market Reaction for Recognizing Assets Impairment: The Case of Taiwan

This research is an empirical study on the effects of reporting assets impairment as required under SFAS No.35 on stock price by examining 787 public enterprises which reported assets impairment between 2005 and 2011. This research further examines the market’s response to enterprises of different characteristics which reported assets impairment. The empirical results show that: i) the market for enterprise recognized an impairment given a positive evaluation, investors believe companies recognized an impairment indicator of the future financial performance of the enterprise is a positive effect and can improve future return on assets; ii) the market reaction of assets impairment for traditional industries is not due to different asset categories for different market reaction, however, the market reaction for electronics industry is subject to the assets categories reactions, such as ownership investment assets impairment do not have explanatory power; iii) corporate economic characteristics factor for the margin of share price reaction, for electronics industry the total return on assets does not have explanatory power, firm size, corporate debt ratio has a negative relationship.