Impairment of Assets and Market Value of Share: A Study of Listed Manufacturing Companies in Sri Lanka
Shareholders get a shock when a company reports its biggest impairment charges in its financial statements. In case of Sri Lanka LKAS 36 regularizes the impairment of assets. The objective of the study is to identify the relationship and impact of Impairment Loss (IL) of non current assets on share price. IL and Share price are independent and dependent variable respectively. The Accounting information (AI) of Earning per Share (EPS) Net Assets Value Per Share (NAVPS) Debt to Equity (DE) and Debt to Total Fund (DTF) were used as mediate variables for this study. Quantitative approach was used for this study during the time period from 2008 to 2014 on 20 listed manufacturing companies which were write down the IL in their financial reports. The impacts were evaluated by inferential statistics of regression and analyzed the relationship by correlation and coefficient within the above variables. Findings of this research revealed that Impairment Loss (IL) significantly correlated with Accounting Information (AI) (r 0.782) and 61% of AI explained by IL (r2 0.611) at the level of 1% (F value 87.912) AI has positive significant correlation with Share Price (SP) (r 0.548) at the level of 1% also it has contributed to determine the SP by 30% (r2 0.300) and AI impact on SP at the level of 1% (F value 5.692) Therefore the study could be concluded that IL significantly impacts on share price via accounting information which was published by the financial reports to the public.