An analysis of factors influencing asset writedowns

Article

Cotter, Julie, Stokes, Donald and Wyatt, Anne-Marie. 1998. "An analysis of factors influencing asset writedowns." Accounting and Finance. 38 (2), pp. 157-179. https://doi.org/10.1111/1467-629X.00008
Article Title

An analysis of factors influencing asset writedowns

ERA Journal ID19059
Article CategoryArticle
AuthorsCotter, Julie (Author), Stokes, Donald (Author) and Wyatt, Anne-Marie (Author)
Journal TitleAccounting and Finance
Journal Citation38 (2), pp. 157-179
Number of Pages23
Year1998
PublisherJohn Wiley & Sons
Place of PublicationMelbourne, Australia
ISSN0810-5391
1467-629X
Digital Object Identifier (DOI)https://doi.org/10.1111/1467-629X.00008
Abstract

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.

Keywordsasset writedowns; managerial incentives and constraints
ANZSRC Field of Research 2020350103. Financial accounting
350799. Strategy, management and organisational behaviour not elsewhere classified
380107. Financial economics
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Byline AffiliationsFaculty of Business
University of Technology Sydney
School of Accounting, Economics and Finance
Institution of OriginUniversity of Southern Queensland
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