Analyst Coverage and Abnormal Asset Impairment: Evidence from China

• In Event: More Financial Reporting

Abstract

Accounting for asset impairment under the IFRS-based new Chinese Accounting Standards involves fair value estimations, and provides opportunities for earnings management. Findings of prior studies have conflicting implications concerning the likely effect of financial analysts on earnings management in emerging market settings. Using data of a sample of publicly-listed companies in China, the current study has found that more analyst following is associated with lower levels of abnormal asset impairment loss, that is, impairment loss that cannot be explained by changes in financial conditions. The statistical results suggest that analyst following curbs earnings management through asset impairment. This study contributes to the literature on effects of analysts on earnings management in emerging market settings, and standard-setting discussions related to asset impairment.

Keywords: asset impairment; analyst following

Author

• Ling Jiang, Jiangxi University of Finance and Economics