Quarterly distribution of asset impairment losses

This paper investigates quarterly distribution of impairment losses in property, plant, and equipment as well as intangible assets after the adoption of K-IFRS. We expect that the frequency, size, and volatility of asset impairment losses vary across quarters because of the difference in the review of interim financial statements, the timing of yearly audit, and the earnings management for big bath or earnings smoothing in the final quarter where yearly earnings are finalized. Empirical results show that the frequency, size, and volatility of asset impairment losses are significantly higher in the fourth quarter. The comparison of the first three quarters shows that the frequency and size of impairment losses of the companies whose assets are lower than ￦500 billion are significantly higher in the second quarter where financial statements should be reviewed. However, for the companies whose assets are equal to or greater than ￦500 billion, no significant difference was found across the quarters. In addition, we compare the firms recognizing asset impairment losses not only in the fourth quarter but also within the first three quarters with those recognizing asset impairment losses only in the fourth quarter. We find that the former is bigger in size, more likely to have reviews of interim financial statements, more likely to be audited by Big 4 auditors, and have better cash flows than the latter. These results imply that the firms recognizing asset impairment losses across quarters have different firm characteristics than those recognizing only in the fourth quarter.