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Asset Impairment Accounting Decisions and Employee Downsizing in Japan


  • Keishi Fujiyama

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)


Given the long-term relationship between firms and employees, the literature suggests that managers enhance the informativeness of accounting numbers in anticipation of employee negotiations to inform their employees of the firm’s underlying economics. This study complements and extends the existing literature by investigating whether asset impairment losses play a signaling role in downsizing negotiations and whether variations in employee influence over firms lead to different impairment accounting practices. Specifically, using a large sample of Japanese firms operating in an environment where employee downsizing is difficult to implement, I find that asset impairment loss recognition mitigates the negative relationship between employee ownership and downsizing, suggesting that impairment losses signal firms’ future negative outlooks. In addition, the results suggest that impairment recognition is costly for managers and impairment losses reflect economic losses, consistent with the informative reporting hypothesis. Importantly, I also find that downsizing firms with strong employee bargaining power recognize asset impairment losses earlier around downsizing implementation than those with weak employee bargaining power, suggesting that such an accounting practice by downsizing firms with strong employee bargaining power elicits concessions from employees.

Suggested Citation

  • Keishi Fujiyama, 2016. "Asset Impairment Accounting Decisions and Employee Downsizing in Japan," Discussion Paper Series DP2016-10, Research Institute for Economics & Business Administration, Kobe University, revised Apr 2018.
  • Handle: RePEc:kob:dpaper:dp2016-10

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    References listed on IDEAS

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    More about this item


    Labor negotiation; Asset impairment; Employee ownership; Downsizing;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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