A COMPREHENSIVE STUDY ON ASSET WRITE-OFFS IN SINGAPORE LISTED COMPANIES

Abstract

This paper analyzes the asset write-offs of firms listed on the Singapore Exchange. I find that intangible asset write-offs are less reliable than tangible asset write-offs as there is no evidence that the former is associated with future earnings, while tangible asset write-offs are positively correlated with future earnings. Tests of value relevance report results consistent with securities market efficiency. Investors realize the reduced reliability of intangible asset write-offs and accordingly react more strongly to tangible asset write-offs than intangible asset write-offs. However, there is evidence of mispricing for the write-offs of assets held under the revaluation and fair value model, suggesting that the Singapore market is not fully efficient. Lastly, I find indications of income smoothing behavior by managers. The results show that managers tend to write-off assets in years of good firm performance, when they have the buffer to build an allowance to boost earnings in the future. Also, managers are likely to write-off assets with reversible write-offs instead of goodwill, due to the irreversibility of goodwill write-offs. In combination, this provides indirect evidence that managers use asset write-offs reversals to conduct earnings management through income smoothing.