Reversal of impairment losses, firm performance and reporting incentives: Evidence from Malaysia

Malaysian Financial Reporting Standard (FRS) No. 136, Impairment of Assets, was issued in 2005. The standard requires public listed companies to report their non-current assets at no more than their recoverable amount. When the value of impaired assets is recovered, or partly recovered, FRS 136 requires the impairment charges to be reversed to its new recoverable amount. This study tests whether the reversal of impairment losses by Malaysian firms is more closely associated with economic reasons or reporting incentives. The sample of this study consists of 182 public companies listed on Bursa Malaysia (formerly known as the Kuala Lumpur Stock Exchange) that reported reversals of their impairment charges during the period 2006-2009. These firms are matched with firms which do not reverse impairment on the basis of industrial classification and size. In the year of reversal, this study finds that the reversal firms are more profitable (before reversals) than their matched firms. On average, the Malaysian stock market values the reversals of impairment losses positively. These results suggest that the reversals generally reflect increases in the value of the previously impaired assets. After partitioning firms that are likely to manage earnings and those that are not, this study finds that there are some Malaysian firms which reverse the impairment charges to manage earnings. Their reversals are not value-relevant, and are negatively associated with future firm performance. On the other hand, the reversals of firms which are deemed not to be earnings managers are positively associated with both future firm performance and current stock price performance, and this is the dominant motivation for the reversal of impairment charges in Malaysia. In further analysis, this study provides evidence that the opportunistic reversals are also associated with other earnings management manifestations, namely abnormal working capital accruals and the motivation to avoid earnings declines. In general, the findings suggest that the fair value measurement in impairment standard provides useful information to the users of financial statements.

Aspects of the biology of the parasite Bonamia ostreae with a view to gaining a greater understanding of how to alleviate its impact on the European flat oyster, Ostrea edulis.

The parasite Bonamia ostreae has decimated Ostrea edulis stocks throughout Europe. The complete life cycle and means of transmission of the parasite remains unknown. The methods used to diagnose B. ostreae were examined to determine sensitivity and reproducibility. Two methods, with fixed protocols, should be used for the accurate detection of infection within a sample. A 13-month study of two stocks of O. edulis with varying periods of exposure to B. ostreae, was undertaken to determine if varying lengths of exposure would translate into observations of differing susceptibility. Oyster stocks can maintain themselves over extended periods of time in B. ostreae endemic areas. To identify a well performing spat stock, which could be used to repopulate beds within the region, hatchery bred spat from three stocks found in the North sea were placed on a B. ostreae infected bed and screened for growth, mortality and prevalence of infection. Local environmental factors may influence oyster performance, with local stocks better adapted to these conditions. Sediment and macroinvertebrate species were screened to investigate mechanisms by which B. ostreae may be maintaining itself on oyster beds. Mytilus edulis was positive, indicating that B. ostreae may use incidental carriers as a method of maintaining itself. The ability of oyster larvae to pick up infection from the surrounding environment was investigated by collecting larvae from brooding oysters from different areas. Larvae may acquire the pathogen from the water column during the process of filter feeding by the brooding adult, even when the parents themselves are uninfected. A study was undertaken to elucidate the activity of the parasite during the initial stage of infection, when it cannot be detected within the host. A naïve stock screened negative for infection throughout the trial, using heart imprints and PCR yet B. ostreae was detected by in-situ hybridisation.