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Asset impairment accounting and appraisers: evidence from Japan.


The asset impairment accounting system has been introduced throughout the world since the mid-1990s. Even in Japan it has been extensively introduced since 2006. This article clarifies the characteristics of companies that used asset impairment accounting and the actual conditions of appraisers' involvement. The analysis shows that companies with high land-impairment ratios are conspicuously likely to select an appraiser's valuation. Appraisers' participation in asset impairment accounting restricts directors' discretionary behavior and suggests the possibility of increasing financial reports' reliability.


Japan experienced a sudden rise and then decline in real estate prices from the late 1980s to the 1990s. As a result, companies that acquired large amounts of real estate when the prices were rising ended up suffering tremendous latent losses. Asset impairment accounting, which recently has been introduced in Japan, has exposed these losses. Today, asset impairment accounting contributes to presentation of the stark contrast between companies that have effectively utilized their corporate real estate and those that have not. This revelation has changed company directors' views of corporate real estate and has created new areas of operations for appraisers, who have greatly contributed to the process of asset impairment accounting. This article presents empirical analyses of companies that have adopted asset impairment accounting and attempts to verify appraisers' roles and contributions.


The Financial Accounting Standards Board (FASB) released Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of, in the United States in 1995. (1) The International Accounting Standards Committee released International Accounting Standards (IAS) No. 36, Impairment of Assets in 1998. (2) Thus, asset impairment accounting has been a global issue since the mid-1990s.

Asset impairment accounting was born in the United States because the reliability of financial reports had deteriorated due to directors who haphazardly and discretionarily devalued fixed assets. (3) This discretionary devaluation of fixed assets affected the reliability of earnings, seriously influencing investors' decisions. (4) Consequently, asset impairment accounting was introduced to promote procedural accounting rules and to curb directors' accounting indiscretions.

Asset Impairment Accounting in Japan

Asset impairment accounting standards have been introduced in Japan in recent years, and voluntarily applied by some companies beginning in 2004. The standards have been extensively used in Japan since 2006.

When performing asset impairment accounting in Japan, a professional appraisal (5) is usually obtained, because Japanese accounting standards require an appraisal in principle for everything except unimportant real estate. (6) Although an appraisal is not obtained for all real estate, the appraiser's role is very important.

As mentioned, the main roles of appraisers in asset impairment accounting are (1) to control the discretionary behavior of company directors and (2) to provide reliable earnings information for those concerned with the relevant companies. If company directors are able to manipulate file market value of real estate, they may decide the amount of impairment in a manner that would bias earnings information. Investors who decide to invest based on this information may suffer unexpected financial damage.

The goal of real estate valuation by appraisers is to prevent such earnings-coordinating behaviors by companies and to provide investors with financial information as close to the companies' real financial situations as possible.

Concepts in Asset Impairment Accounting

The amount of asset impairment is equal to the difference between the book value and the recoverable value of an asset in Japan (Figure 1). The size of an impairment charge could have a significant impact on a business and its management. Therefore, the recoverable value of an asset must be clearly and objectively estimated in order for businesses to successfully implement an accounting system based on the impairment concept. The recoverable value should be determined by gathering relevant transaction data in the real estate market. Real estate appraisers are expected to play an important role as market experts in this process.


Asset impairment is treated differently in other countries. The accounting standards dealing with impairment are generally divided into two groups: the United States' FASB Standards and the International Accounting Standards Board (IASB) Standards.

In the United States, SFAS No. 144 states that impairment is a condition that exists when an asset's book value exceeds its fair value. This standard also states that the amount of impairment loss can be recognized only when an asset's book value cannot be recovered and exceeds its fair value. The standard states that the amount of impairment loss can be measured as the difference between the book value and the fair value.

On the other hand, IAS No. 56, defines impairment as a situation in which an asset's book value exceeds a recoverable amount, which is the higher of net selling price or use value. Therefore, the IASB's standards capitalize the difference between an asset's book value and recoverable amount as the amount of impairment.

Japan's standards are closer to the IASB standards than to the FASB standards, and involve appraisers in the evaluation of the above-mentioned net selling prices. In addition, not all assets are subject to the assessment of impairment. In Japan, assets capitalized as impaired are specified depending on the amount of future cash flows that comes from those assets. These ideas are based on the United States' standards. The final amount of impairment is capitalized as an expense on a profit-loss statement, greatly impacting profit and, eventually, the company's future management.

As discussed so far, asset impairment accounting varies slightly from country to country in terms of procedures. These differences have caused misunderstandings among companies that pursue global economic activities. To prevent these misunderstandings, overall accounting standards, including those regarding asset impairment, are now converging on a global scale and are expected to be unified in the near future.

Literature Review

Since asset impairment accounting standards have been introduced, few empirical studies have focused on the relation between asset impairment accounting and appraisers. This section will review the empirical studies of asset revaluation, which has been voluntarily applied as a business custom for many years in the United Kingdom and Australia.

Generally, the methods for revaluing tangible fixed assets under accounting standards, such as those in the United Kingdom and Australia, are classified according to who conducts the revaluation. Where a business administrator carries out the revaluation it is called a "director's valuation" An "appraiser's valuation" is a revaluation by an appraiser who has special qualifications to carry out the revaluation as a third party.

The sale price of real estate is normally formed on the basis of a transaction's specific circumstances. Moreover, the sale price is also influenced by the real estate's individual attributes. It may be extremely difficult for an ordinary person to determine the market value. Thus, in order to evaluate property more accurately and easily, a valuation by an appraiser is accepted as a proper valuation method. However, a director's valuation or an appraiser's valuation can be chosen at the director's discretion. Consequently, this discretion may affect the valuation's reliability and deteriorate the financial report's quality.

Taking into consideration the different types of valuations, the literature was reviewed to analyze whether appraisers' valuations are reliable, and what motives prompt directors to select an appraiser's valuation.

Studies focusing on the reliability of appraisers' valuations include research by Dietrich, Harris, and Muller, (7) of companies in the United Kingdom, and research by Barth and Clinch of companies in Australia. (8) Studies in Australia by Brown, Izan, and Loh, (9) and by Cotter and Richardson (10) focus on company directors' motives in selecting appraisers' valuations. The following summarizes these studies.

Reliability of Appraisers' Valuations

Research focusing on revaluation reliability was done by Dietrich, Harris, and Muller. Their study analyzes revaluation data from 1988 to 1996, and tries to clarify the reliability of appraisers' valuations. They examine the difference between properties' book values and sale prices. Where the difference is only slight, they assume that the book value is more reliable than where the difference is large. Based on this analytical procedure, they find that the appraisers' valuations are a more reliable indicator of real value than the book value. They also find that the valuations in case of an audit by the six major audit corporations are accurate even when they are directors' valuations. Lastly, they conclude that the appraisers' valuations are more accurate than the audit by the six major audit corporations when the directors' valuations are used.

In the Dietrich, Harris, and Muller study, the reliability of an appraiser's valuation was accepted, and it is certain that the six major audit corporations' audits also contributed to some extent to reliable property valuations.

Barth and Clinch analyze the impact of revaluation on the stock prices of 243 companies that revaluated assets from 1991 to 1995. Their analysis shows that revaluation of lands and buildings significantly influences stock price in a statistical hypothesis test. Qualified professional real estate appraisers were involved in many cases, and Barth and Clinch verify the difference between appraisals of assets by appraisers and by the company directors. They hypothesize that appraisals made by appraisers more fairly appraise the assets than appraisals by the companies' own directors, and therefore, investors emphasize that information. However, no difference is seen between the methods' influence on stock price.

Selection of Appraisers' Valuations

The Brown, Izan, and Loh study examines whether companies that choose appraisers' valuations and companies that choose directors' valuations differ in their financial characteristics. They conduct research based on revaluation data from 1974 to 1977 for 139 companies. The results of their analysis show that the debt ratio of the companies that choose appraisers' valuations is significantly high. Therefore, it can be assumed that the appraiser's valuation is utilized in order to validly collateralize the revaluation to a financial institution.

Cotter and Richardson also analyze the difference between directors' and the appraisers' valuations. Their analysis includes data for 483 companies from between 1981 and 1999 and uses a Probit model (11) whose explained variable is whether or not an appraiser was used, and the explanatory variables are the asset value, debt ratio, governance, etc. Their results are different from those of Brown, Izan, and Loh, and show that debt ratio is not a significant variable, but corporate governance is a significant variable. To be more precise, the companies with separate chief executive officers and chairmen tended to select appraisals by appraisers, and the companies whose management was monitored by directors appeared to be systematically oriented to select directors' valuations. It is evident that companies' choice of appraisal by an appraiser depends on how the companies are governed, rather than their desire to be accountable to banks. It is also apparent that outside directors play an important role in this decision.

As shown, there is research (e.g., Dietrich, Harris, and Muller) indicating that appraisers' valuations are more reliable than directors' valuations. The research also appears to indicate that corporate governance is an important factor in empirical analysis (Cotter and Richardson). Based on the preceding studies, the next section of this article will empirically analyze companies in Japan that use asset impairment accounting.

Analysis of Companies That Use Asset Impairment Accounting

This section describes the characteristics of companies in Japan that have used asset impairment accounting in recent years, and the actual conditions of appraisers' participation. The analysis has a dual purpose. First, it attempts to identify how companies began to adopt asset impairment accounting, by comparing and analyzing companies that use asset impairment accounting and those that do not. Second, it attempts to identify what contributions appraisers make to asset impairment accounting.

The sample companies in this research include 568 businesses continuously listed on the first section of the Tokyo Stock Exchange from 1984 to 2003. Based on the financial data in the companies' financial reports, about 63%, or 357 companies, apply asset impairment accounting, including some with early application, i.e., 2004 and 2005.

Characteristics of Companies Using Asset Impairment Accounting Company Assets

First financial information about companies that use asset impairment accounting is collected. As Table 1 shows, the large companies in Japan began using asset impairment accounting at an early stage. Moreover, it is conspicuous that the ratio of amount of impairment to total assets applied in 2004 is much higher than in other periods. It is clear, therefore, that the large companies with latent losses chose to apply asset impairment accounting at an early stage on their own initiative. (12)


Land Value

Next, the sample companies' process of accumulating land is analyzed. The average land book value was found for 1984, 1989, 1994, 1999, and 2003. According to these results, the change in average book value of land owned by companies applying asset impairment accounting in 2004 differs remarkably from other groups. Their degree of value increase is overwhelming compared to other groups since 1989. Figure 2 shows the correlation between use of asset impairment accounting and change in average book value of land.


Figure 3 shows an index of commercial and industrial land price in Japan. It appears that those companies that obtained large amounts of land during the real estate bubble (13) suffered a high degree of latent loss. During the real estate bubble, many Japanese companies did not sufficiently consider the economic feasibility of their businesses. The companies' losses can also be blamed on commercial banks. Many banks intentionally overestimated the value of real estate for mortgage financing at that time, and lent a substantial amount of money.

It is also true, however, that some companies thoroughly analyzed the economic feasibility, of their operations before they obtained real estate. The rate of the occurrence of impairment is lower for these companies than for other companies. Therefore, the reason that some companies in Japan used asset impairment accounting, and others did not, is related to their management policies regarding corporate real estate during the time when land prices were rapidly increasing. These arguments apply not only to Japan. The data suggests that other countries also face the same situation, and random investment in real estate when land prices are increasing could lead to a huge amount of impairment when these prices decline and, eventually, negatively impact the investing company's management.


Asset impairment accounting has been applied extensively since 2006 in Japan. Logit regression analysis (14) is used in this research to analyze the difference between companies that used asset impairment accounting in 2006 (N= 264) and those that did not (N= 195). (15) As an explained variable, 1 is assigned to the applying companies, and 0 is assigned to the nonapplying companies. Consolidated financial data from 2005 is used for this analysis.

Explanatory variables are adopted for ownership, (16) Tobin's q, debt ratio, return on assets (ROA), and total assets. The ownership variables include ratio of executive shareholding (executive ratio), ratio of foreign shareholding (foreign ratio), ratio of bank shareholding (bank ratio), and ratio of general business company shareholding (company ratio). Tobin's q represents the market value of stocks plus the amount of debt divided by the total assets. The debt ratio equals company debt divided by total assets. A natural logarithm conversion is adopted for total assets.

The descriptive statistics of the variables are shown in Table 2. A correlation matrix is presented in Table 3.

Analysis and Results

The regression coefficients for debt ratio and ROA are significantly negative with a 1% level. Similarly, the coefficient of total assets is significantly positive with a 1% level. Moreover, the coefficient of the ratio of foreign shareholding is significantly negative with a 1% level. These results show that companies with more property have a higher probability of using asset impairment accounting. When debt ratio, ROA, and foreign ratio are higher, the probability of using asset impairment accounting is lower. The foreign investors in Japan strongly consider the concept of capital cost. These investors use their voting rights to speak to corporate management. From such a perspective, the ratio of foreigners' shareholding has improved companies' property efficiency. (17)

Regarding debt ratio, when debt increases, bankruptcy risk also increases, promoting management efficiency and applying pressure on managers. (18) The ROA presents an indication of a company's profitability. It can be assumed that less profitable companies have a high risk of using asset impairment accounting. These results are interpreted as being in accordance with the rationale for asset impairment accounting standards. This is because accounting standards limit assets that can be considered impaired to assets with future cash flows below a certain amount.

Finally, the coefficients of total assets can be interpreted as follows. The probability of latent property loss increases when property holdings increase, promoting the use of asset impairment accounting. Consequently, it can be assumed that, the more total assets a company owns, the more property it holds.

As shown in the analysis of Figure 2, the more property companies own, the more latent property losses they hold. Therefore, these companies have a higher chance of suffering impairment.

The results of the regression analysis are presented in Table 4.

Characteristics of Companies Using Appraisers' Valuations

So far, the analysis has identified why some companies began applying asset impairment accounting and the financial characteristics of these companies. Next the data will be examined to identify differences between asset impairment accounting companies that use directors' valuations and those that use appraisers' valuations.

Currently, the companies that use asset impairment accounting in Japan are viewed as not properly managing their corporate real estate, so they are given a low valuation by investors. To increase this valuation, many companies struggle to improve the efficiency of their corporate real estate management. To meet these corporate needs, appraisers are utilizing their expertise and expanding their operations by giving advice to companies. This analysis of company characteristics provides information that can serve as a basis for appraisers to conduct consulting operations for company directors.


Examination of the 272 companies that used asset impairment accounting in 2006 shows that 258 companies had calculated the net sale price of as sets. Ownership data is available for 250 of these 258 companies. The 250 companies are classified into two groups based on the notes of their financial reports. One group includes companies with asset impairment accounting in which an appraiser valuation is involved (N= 148), and the second group includes companies where an appraiser valuation is not involved (N= 102). A total of 59% of the sample companies have adopted an appraiser's valuation.

Again a Logit regression analysis is used. As an explained variable, 1 is assigned to the companies that used an appraiser, and 0 is assigned to companies that did not. The variables are defined as before. The variable for Tobin's q is omitted, and variables for earnings change and land-impairment ratio are added. A value of 1 is assigned to companies if their earnings decreased since 2005, and 0 is assigned to companies if their earnings increased since 2005. The land-impairment ratio equals the impairment loss in land divided by total assets.

The descriptive statistics of variables are as shown in Table 5 and the correlations matrix is presented in Table 6.

Analysis and Results

According to the regression results, the land impairment ratio is significantly positive with a 1% level, and the ratio of shareholding of general business companies (19) is significantly negative with a 5% level. This means that companies with high land impairment ratios are conspicuously likely to select appraisers' valuations. Also, companies with higher ratios of general corporate shareholding tend to make little use of appraisers' valuations. The Logit regression results are shown in Table 7.

Two issues can be pointed to as an interpretation of the analysis results. The first issue is that the appraisal is not so highly emphasized when the ratio of general business shareholding is high. In many cases, companies with a high ratio of general business shareholding hold many shared stocks. This sharing of stock is one of the traditional practices of Japanese management. It means that companies in the same group own mutual stocks at a fixed rate. This prevents the acquisition of the company by a third party, thus stabilizing management. However, it also makes companies' monitoring appear insufficient from a third party's viewpoint. Because these companies do not have a responsibility to explain their finances to external investors, there is little incentive to use an external appraiser.

The second issue is that change in earnings, one of the explanatory variables, is not a significant variable. This variable was selected in order to verify whether discretionary property valuation is used to adjust earnings. If companies adopt a property tax assessment value of 70% of market value, instead of an appraiser's valuation, they can increase impairment. When the variable is not significant, it can be concluded that there is little possibility that the valuation method was chosen in order to manipulate earnings downward. A downward adjustment of earnings, called a "big-bath," is common in the United States? (20)

Based on the Table 7, the earnings change variable is not significant, so it seems that there is little possibility of adjusting of earnings by using a nonappraiser's valuation.

This analysis shows little possibility that directors choose the valuation method in order to adjust earnings, because companies with large amounts of impairment prefer appraisers' valuations. This is the trend the accounting standards assumed previously. The study shows that if the accounting standard prescribes appraisers' valuation, it will help to control directors' discrete behavior, enhancing financial reports' reliability.


This article has focused on the trend of asset impairment accounting in Japan, and has clarified the actual conditions of the companies that use asset impairment accounting and the appraisers concerned with it. Analyses of actual data have led to a conclusion: if appraisers are involved in the application of asset impairment accounting, they can put a brake on company directors' discretionary behaviors to adjust earnings, which enables the companies to make more reliable financial reports than they currently do.

Today, accounting standards are converging on a large scale, including the convergence of asset impairment accounting. This trend will further promote the globalization of economic activities. The appraisal business is also expected to become equipped in a more universal context because of the gradual disappearance of economic barriers. Qualified appraisers need to secure their status as professionals during this critical period of sweeping change and globalization. In order to do this, they must broadly demonstrate to the economic society that their involvement in the real estate accounting system could improve companies' financial reporting. This article is an attempt to help realize this recognition. Hopefully, empirical studies in this field will begin to be accumulated.

Many countries remain unfamiliar with asset impairment. Japan was one of those countries in the late 1980s, when real estate prices were rising. Japan, however, has learned from experience that proper management of corporate real estate when real estate prices are increasing can reduce the risk of the future assets impairment.

Partly because of this experience, the introduction of asset impairment accounting to Japan has drastically changed company directors' views of corporate real estate. In other words, they have begun to position corporate real estate as a main component of management, and are actively attempting to strategically improve their corporate value. Appraisers need to not only pay attention to the individual real estate of each company, but also realize that they can provide services that can create corporate value from a macroscopic view.

(1.) SFAS No. 121 was revised and replaced by SFAS No. 144, Accounting for the Impairment or the Disposal of Long-Lived Assets in 2001. Also see SFAS No. 157, Fair Value Measurements.

(2.) In 2001, the International Accounting Standards Board (IASB) replaced the International Accounting Standards Committee as the entity establishing international accounting standards.

(3.) Linda J. Zucca and David R. Campbell, "A Closer Look at Discretionary Writedowns of Impaired Assets," Accounting Horizons 6, no. 3 (September 1992): 30-41.

(4.) Edward J. Riedl, "An Examination of Long-Lived Asset Impairments," The Accounting Review 79, no. 3 (2004): 823-852.

(5.) There are about 5000 certified real estate appraisers in Japan. To be an appraiser requires passing the national examination and having extensive professional expertise and practical experience.

(6.) The accounting standards do not define unimportant real estate. For unimportant real estate the property tax assessment value can be used instead of an appraisal. This property tax assessment value is 70% of the market value; see The Asset Impairment Accounting Standards (Japan), Clauses 28 and 90. Municipal governments set assessment values every 3 years. This assessment information is freely available to taxpayers.

(7.) J. Richard Dietrich, Mary S. Harris, and Karl A. Muller, III, "The Reliability of Investment Property Fair Value Estimates," Journal of Accounting and Economics 30, no. 2 (October 2000): 125-158.

(8.) Mary E. Barth and Gregory Clinch, "Revalued Financial, Tangible and Intangible Assets: Associations with Share Prices and Non Market-Based Estimates," Journal of Accounting Research 36 (1998): 199-233.

(9.) Philip H. Brown, H. Y. Izan, and Alfred L. Loh, "Fixed Asset Revaluations and Managerial Incentives," ABACUS 28, no. 1 (1992): 36-57.

(10.) Julie Cotter and Scott A. Richardson, "Reliability of Asset Revaluations: The Impact of Appraiser Independence," Review of Accounting Studies 7, no. 4 (December 2002): 435-457.

(11.) This is a regression model with a binary variable of 0-1 as an explained valuable, just like the Logit model. This can be interpreted as a binomial selection model, which is, a model that chooses between two choices. But the Probit model and the Logit model are not always the same. The Probit model is based on a cumulative normal distribution, is less flexible, and cannot readily be extended to more than one predictor variable.

(12.) A common factor among the 24 companies applying asset impairment accounting in 2004 is that they are relatively large well-known companies characterizing business in Japan. They had strong motivation to appeal to investors by showing that they had already gotten rid of much latent loss in corporate real estate by applying assets impairment accounting earlier.

(13.) Japan's land prices surged during the latter half of the 1980s. A serious financial problem occurred when land prices rapidly declined in the early 1990s and many companies owned land at a latent loss.

(14.) Samples of which ownership data can be clearly identified were adopted.

(15.) A Logit model is one of the stochastic models. The stochastic alignment model is presented by the alignment of a combination of variables x (r pieces) as Z = [[beta].sub.0] + [[beta].sub.1x1] + [[beta].sub.2x2] + ... + [beta] ,x,. However, the problem of a stochastic alignment model is that it does not guarantee that the presumed probability goes into the section of 0 and 1, To store this presumed probability between 0 and 1, Logit conversion is carried out and the above-mentioned alignment combination is presented as p(x) = exp(z)/(1 + exp(z)) = 1/(1 + exp(-z)). When this is transformed, it appears as log(p(x)/(1-p(x))) = [[beta].sub.0] + [[beta].sub.1x1] + [[beta].sub.2x2] + ... + [beta] ,x,.

(16.) The explanatory ownership variables were adopted based on the previously mentioned study by Cotter and Richardson that focuses on corporate governance.

(17.) Companies' property efficiency is defined as profit divided by tangible fixed assets.

(18.) Philippe Aghion and Patrick Bolton, "An Incomplete Contracts Approach to Financial Contracting," Review of Economic Studies 59, no. 3 (July 1992): 473-494; Oliver Hart and John Moore, "Default and Renegotiation: A Dynamic Model of Debt," Quarterly Journal of Economics 113, no. 1 (February 1998): 1-41.

(19.) This means general business companies except financial institutions and securities firms.

(20.) Riedl. Big bath is defined as "the strategy of manipulating a company's income statement to make poor results look worse. The big bath is often implemented in a bad year to enhance artificially next year's earnings,"

by Takashi Yamamoto, PhD

Takashi Yamamoto, PhD, is a senior researcher of Japan Real Estate Institute in Tokyo. He has more than 20 years of appraisal experience. He is interested in real estate accounting, and has written many articles in accounting and real estate journals, lie holds a PhD in Economics from Saitama University.

Table 1 Financial Data for Companies Applying Asset
Impairment Accounting, 2004-2006


 2004 2005 2006

Number of companies 24 61 272

Amount of loss impairment (a)
 Mean 10,662 3,056 2,034
 Median 3,074 1,402 460
 Std. Dev. 23,742 5,348 5,022

Total assets (b)
 Mean 1,180,727 514,032 364,208
 Median 397,694 223,347 113,829
 Std. Dev. 1,920,004 674,541 991,350

Impairment ratio (%) (a)/(b)
 Mean 1.19 0.92 0.95
 Median 1.00 0.45 0.34
 Std. Dev. 0.90 1.21 2.37

Note: The amount of impairment loss and amount of gross
assets are shown in 1 million yen units on the consolidated
accounts basis.

Table 2 Descriptive Statistics of Variables: Application
and Nonapplication of Asset Impairment Accounting, 2006

Variable Mean Std. Dev. Minimum Maximum

Executive ratio 0.010 0.021 0.000 0.192
Foreign ratio 0.070 0.105 0.002 0.800
Bank ratio 0.353 0.139 0.061 0.659
Company ratio 0.234 0.150 0.004 0.814
Tobin's q 1.032 0.318 0.370 2.902
Debt ratio 0.630 0.234 0.129 2.451
ROA 0.006 0.042 -0.282 0.207
Total assets 11.522 1.233 7.482 16.135

Table 3 Correlation Matrix: Application and Nonapplication
of Asset Impairment Accounting, 2006

 Executive Foreign Bank Company
 Ratio Ratio Ratio Ratio

Executive ratio 1.000
Foreign ratio 0.048 1.000
Bank ratio 0.213 0.355 1.000
Company ratio 0.328 0.325 0.618 1.000
Tobin's q -0.033 -0.431 -0.204 -0.108
Debt ratio 0.123 0.367 0.203 0.034
ROA -0.021 -0.040 -0.051 -0.143
Total assets 0.064 -0.598 -0.468 -0.124

 Debt Total
 Tobin's q Ratio ROA Assets

Executive ratio
Foreign ratio
Bank ratio
Company ratio
Tobin's q 1.000
Debt ratio -0.306 1.000
ROA -0.288 0.319 1.000
Total assets 0.174 -0.408 -0.165 1.000

Table 4 Logit Regression Results: Application and Nonapplication
2006 of Asset Impairment Accounting,

Variable Coefficient Standard t-value p-value

Executive ratio 3.785 5.920 0.639 0.52284
Foreign ratio -6.013 ** 1.708 -3.519 0.00047
Bank ratio -1.56 1.162 -1.346 0.17879
Company ratio 0.458 1.010 0.453 0.65016
Tobin's q 0.769 0.408 1.885 0.06001
Debt ratio -2,739 ** 0.582 -4.701 0.00000
ROA -18.799 ** 3.861 -4.869 0.00000
Total assets 1.045 ** 0.153 6.804 0.00000
Intercept -9.748 ** 1.540 -6.301 0.00000
Chi-square 97.366
 (p = 0.00000)

* Significant at 5% ** Significant at 1% (two side tests)

Table 5 Descriptive Statistics of Variables: Use of Appraisers'
Valuations and Nonappraisers' Valuations in Asset Impairment
Accounting, 2006

Variable Mean Std. Dev. Minimum Maximum

Executive ratio 0.0080 0.018 0.000 0.159
Foreign ratio 0.0770 0.103 0.002 0.651
Bank ratio 0.3660 0.142 0.051 0.656
Company ratio 0.2300 0.150 0.017 0.814
Earnings change 0.3430 0.475 0.000 1.000
Land impairment ratio 0.0050 0.017 0.000 0.250
Debt ratio 0.6180 0.191 0.135 1.145
ROA 0.0003 0.043 -0.282 0.117
Total assets 11.9040 1.260 8.514 15.810

Table 6 Correlation Matrix: Use of Appraisers' Valuations and
Nonappraisers' Valuations in Asset Impairment Accounting, 2006

 Executive Foreign Bank Company Earnings
 Ratio Ratio Ratio Ratio Change

Executive ratio 1.000
Foreign ratio 0.003 1.000
Bank ratio 0.173 0.222 1.000
Company ratio 0.258 0.344 0.622 1.000
Earnings change 0.025 0.033 0.016 0.033 1.000
Land impairment 0.057 -0.042 -0.032 -0.140 -0.048
Debt ratio 0.202 0.278 0.225 0.145 -0.079
ROA 0.036 -0.115 -0.073 0.000 0.003
Total assets 0.158 -0.526 -0.408 -0.203 0.070

 Impairment Debt Total
 Ratio Ratio ROA Assets

Executive ratio
Foreign ratio
Bank ratio
Company ratio
Earnings change
Land impairment 1.000
Debt ratio -0.006 1.000
ROA 0.033 0.239 1.000
Total assets 0.158 -0.255 -0.045 1.000

Table 7 Logit Regression Results: Use of Appraisers'
Valuations and Nonappraisers' Valuations in Asset Impairment
Accounting, 2006

Variable Coefficient Standard t-value p-value

Executive ratio -13.831 9.411 -1.469 0.14292
Foreign ratio -3.577 1.866 -1.916 0.05641
Bank ratio -1.242 1.468 -0.846 0.39823
Company ratio -3.240 * 1.334 -2.427 0.01592
Earnings change -0.142 0.300 -0.474 0.63532
Land impairment 133.103 ** 36.389 3.657 0.00031
Debt ratio 0.392 0.840 0.466 0.64106
ROA -2.509 3.479 -0.721 0.47141
Total assets 0.513 ** 0.163 3.132 0.00194
Intercept -4.896 ** 1.802 -2.716 0.00705
Chi-square 50.052
 (p = 0.00000)

* Significant at 5% ** Significant at 1% (two side tests)
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Author:Yamamoto, Takashi
Publication:Appraisal Journal
Geographic Code:9JAPA
Date:Mar 22, 2008
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