Voluntary asset write-downs under SFAS 121: early adopters vis-a-vis late adopters

Previous research shows that the stock market positively values firms whose motivation is to clearly enhance productivity through streamlining their assets as part of a restructuring campaign. In this study, we examine 47 firms that voluntarily disclosed asset write-down information in either 10-K or ARS one year prior to the mandatory adoption of SFAS 121. Our study found that EARLY firms (those who adopted SFAS 121 in 1995, one year prior to the mandatory adoption) experienced a more positive market reaction than LATE firms (those who adopted SFAS 121 in 1996). Second, EARLY firms incur more capital expenditures, acquire less intangibles and exhibit lower asset turnover ratios than LATE firms. Finally, EARLY firms show higher profitability, and have a higher effective tax bracket than those of LATE firms. Overall, these findings suggest that voluntary restructuring and disclosure of such was more likely to be conducted by financially robust firms. This study adds support to the notion that the market rewards firms that restructure to improve productivity. It also seems that the market does not interpret involuntary restructuring as a positive event.