Real Asset Liquidity and Asset Impairments

I examine how the presence of a more active (liquid) resale market for real assets influences the likelihood, timeliness, and magnitude of long-lived asset impairments. I find that firms with more liquid real assets are more likely to record an impairment both unconditionally and conditional on a signal of poor performance, consistent with an available resale market providing information useful in estimating fair value for long-lived operating assets. Impairments are more likely in tests using both industry-level measures of real asset liquidity and firm-specific measures of aircraft fleet liquidity for firms in the airline industry. Consistent with asset liquidity constraining managerial opportunism in delaying write-offs, I also find that impairments are timelier (more conditionally conservative) for firms with more liquid real assets and that impairment magnitudes vary more strongly with firm value. Finally, impairments for firms with more liquid real assets are associated with greater decreases in uncertainty around earnings announcements as measured by changes in option implied volatility.