Determinants of Asset Write-offs in Malaysia: The Economic Crisis Effect

Abstract

Abstract: This study focuses on examining factors that determine tangible asset write-offs in Malaysian firms prior to the implementation of MASB 23 Impairment of Assets. In the absence of a specific standard that deals with this issue in Malaysia, most managers have significant freedom to determine the timing and amount of asset write-off. The study investigates whether economic climate and the level of performance have a significant effect on the propensity of the management to write-off assets. In a normal economic environment, asset write-offs are negatively related to firm performance. We hypothesised that the relationship is weaker during the economic crisis period compared to the economic prosperity period. This is attributed to the management of firms using the economic crisis period as an excuse to justify massive asset write-offs (big-bath) The economic crisis period is chosen to write-off assets in order to minimise the negative market reaction from the action. However, our results show that the relationship is stronger during the crisis period. In order to avoid losses, sample firms tended to record less write-offs during non- crisis periods compared to other firms. During the crisis period, firms may write-off assets without considering the implications of recording a loss since the macroeconomic scenario is already poor.