Accounting for the impairment of long-lived assets: Evidence from the petroleum industry

We investigate write-downs of assets of oil and gas firms due to the application of the SEC full-cost ceiling test during the period of the largest decline in oil and gas prices since this test was mandated. The correlation between the write-down amounts and contemporaneous returns is statistically significant, but it is lower than the correlation with lagged returns. This and other evidence suggests that, although the market perceived that some of the decline in asset value occurred in the quarter in which the write-down was recorded, much of the share market price adjustment due to this decline occurred earlier. (C) 2000 Elsevier Science B.V. All rights reserved.