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.

At what price? A cost-effectiveness analysis comparing trial of labour after previous caesarean versus elective repeat caesarean delivery

Background: Elective repeat caesarean delivery (ERCD) rates have been increasing worldwide, thus prompting obstetric discourse on the risks and benefits for the mother and infant. Yet, these increasing rates also have major economic implications for the health care system. Given the dearth of information on the cost-effectiveness related to mode of delivery, the aim of this paper was to perform an economic evaluation on the costs and short-term maternal health consequences associated with a trial of labour after one previous caesarean delivery compared with ERCD for low risk women in Ireland.Methods: Using a decision analytic model, a cost-effectiveness analysis (CEA) was performed where the measure of health gain was quality-adjusted life years (QALYs) over a six-week time horizon. A review of international literature was conducted to derive representative estimates of adverse maternal health outcomes following a trial of labour after caesarean (TOLAC) and ERCD. Delivery/procedure costs derived from primary data collection and combined both "bottom-up" and "top-down" costing estimations.Results: Maternal morbidities emerged in twice as many cases in the TOLAC group than the ERCD group. However, a TOLAC was found to be the most-effective method of delivery because it was substantially less expensive than ERCD ((sic)1,835.06 versus (sic)4,039.87 per women, respectively), and QALYs were modestly higher (0.84 versus 0.70). Our findings were supported by probabilistic sensitivity analysis.Conclusions: Clinicians need to be well informed of the benefits and risks of TOLAC among low risk women. Ideally, clinician-patient discourse would address differences in length of hospital stay and postpartum recovery time. While it is premature advocate a policy of TOLAC across maternity units, the results of the study prompt further analysis and repeat iterations, encouraging future studies to synthesis previous research and new and relevant evidence under a single comprehensive decision model.

A study of the Hobson and Rogers volatility model

We firstly examine the model of Hobson and Rogers for the volatility of a financial asset such as a stock or share. The main feature of this model is the specification of volatility in terms of past price returns. The volatility process and the underlying price process share the same source of randomness and so the model is said to be complete. Complete models are advantageous as they allow a unique, preference independent price for options on the underlying price process. One of the main objectives of the model is to reproduce the `smiles' and `skews' seen in the market implied volatilities and this model produces the desired effect. In the first main piece of work we numerically calibrate the model of Hobson and Rogers for comparison with existing literature. We also develop parameter estimation methods based on the calibration of a GARCH model. We examine alternative specifications of the volatility and show an improvement of model fit to market data based on these specifications. We also show how to process market data in order to take account of inter-day movements in the volatility surface. In the second piece of work, we extend the Hobson and Rogers model in a way that better reflects market structure. We extend the model to take into account both first and second order effects. We derive and numerically solve the pde which describes the price of options under this extended model. We show that this extension allows for a better fit to the market data. Finally, we analyse the parameters of this extended model in order to understand intuitively the role of these parameters in the volatility surface.