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An analysis of factors influencing asset writedowns
Author(s) -
Cotter Julie,
Stokes Donald,
Wyatt Anne
Publication year - 1998
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/1467-629x.00008
Subject(s) - incentive , accrual , asset (computer security) , corporate governance , business , income statement , financial statement , accounting , asset management , sample (material) , magnitude (astronomy) , quality (philosophy) , value (mathematics) , balance sheet , finance , actuarial science , economics , microeconomics , audit , statistics , philosophy , chemistry , computer security , earnings , chromatography , epistemology , computer science , physics , astronomy , mathematics
This study investigates the magnitude of total asset writedowns for a random sample of Australian industrial companies. We adopt an income strategy approach in operationalising our magnitude of writedowns construct to consider the set of accounting policies and negative accruals potentially available to managers. Our focus is on the incentives for and constraints on management to make asset writedowns. We find that the magnitude of writedowns observed are associated with managers’ incentives to writedown impaired assets that have declined in value, as well as the firm's capacity to absorb the financial statement effects of the writedown. The number of senior management changes found to be associated with greater writedowns in prior studies is also supported in this study when only writedowns taken to the income statement are considered. The quality of corporate governance mechanisms does not vary systematically with the magnitude of writedowns.