Impairment losses and debt characteristics: a study in multiple countries under IFRS reporting

Abstract

Purpose: This thesis investigates the association between debt characteristics and the probability of impairment recognition for firms that have been through economic shocks. These debt characteristics are debt level, type of creditor, the ratio of short-term debt to total debt, and the amount of net debt issued in the period. Design/methodology/approach: From a broad sample of IFRS reporting stock-listed firms from 16 countries, I identified likely economic shocks through a combination of persistently high book-to-market ratios, low returns on assets and low F-Scores. Through logistic regressions, I analyzed whether the firm’s debt characteristics are associated with the firm’s probability of recognizing impairment losses. Findings: Results suggest that the probability of recognizing impairment losses increases when the firm has exchange-traded debt, and it also increases when leverage increases, even though in some specifications it increases at decreasing rates. Results also show that the ratio of short-term debt to total debt and the amount of net debt issued in the period do not have a consistently significant association with impairment recognition, even though theory predicts these variables should affect the probability of recognizing impairment losses. Originality/value: This study contributes to the impairment and conditional conservatism literature by showing that the difference in levels of asymmetry of information between the firm and its creditors influence the demand for conditional accounting conservatism.