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An International Meeting of American Accounting
Association
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Asset Devaluation in the Absence of Agency Incentives |
Neil Garrod
Thames Valley University
Ursa Kosi
University of Ljubljana
Aljosa Valentincic
Universitiy of Ljubljana
Aljosa Valentincic
University of Ljubljana
Abstract: We investigate factors that influence the decision to and the magnitude of fixed and current asset devaluation (as opposed to upward revaluation) in a codified legal environment with aligned tax and financial reporting and no agency incentives, on a large sample of 23,455 small private companies, extending existing literature that focuses almost exclusively on revaluations of fixed assets in large, publicly-quoted companies. Contrary to predictions from accounting standards, more profitable companies are both more likely to devalue and the magnitude of devaluation is higher, reflecting minimization of tax payments. Larger companies are more likely to devalue, but the relative amount of devaluation decreases with size, reflecting increasing political costs due to greater visibility to tax authorities. Reflecting idiosyncrasies of the sample, companies that devalued their assets in previous years are more likely to and will devalue more. Effects are controlled for contractual incentives.