Abstract
This study investigates the characteristics of impairment loss reported by Japanese firms using empirical analysis. The empirical results are as follows.（ 1） Economic factors, especially GDP, are associated with impairment loss. （2） Impairment loss has a high association with reporting incentives （inside management’s turnover, the existence of debt contract （or higher debt to equity ratio）, and cases when the estimated profit is very different from the real profit before adjusting for impairment loss after controlling for economic factors. （3） There is a possibility of Japanese companies engaging in “income smoothing” and “Big Bath” behavior using impairment loss. Overall, the empirical results suggest that the management can exercise great flexibility in reporting impairment loss.
