Article2013

Asset Write‐offs in Private Firms – The Case of German SMEs

50 citations0/0 files storedJournal of Business Finance &amp Accounting

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Auditing, Earnings Management, Governance Accounting Theory and Financial Reporting Financial Reporting and Valuation Research

Abstract

Abstract This paper finds that private firms make the decision to write off, and write off more in terms of total amount, if they are: (i) more profitable, (ii) have more financial debt, and (iii) pay dividends. Our findings are contrary to expectations based on accounting standards and the existing revaluation literature. They are, however, consistent with the codified, high book‐tax alignment economic setting in which sample private firms operate. This includes agency problems faced by private firms’ stakeholders. We use a comprehensive sample of German SMEs reporting in local GAAP, based on the German commercial code (Handelsgesetzbuch) in 2003–2006. We view write‐offs as corrections of departures of book values from their underlying economic values, in contrast to upward asset revaluations. This governs our choice of estimation – the tobit regression.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1985Positive Accounting Theory 1997The conservatism principle and the asymmetric timeliness of earnings1 1997Earnings management to avoid earnings decreases and losses 2000The effect of international institutional factors on properties of accounting earnings 2003Conservatism in Accounting Part I: Explanations and Implications 1999Earnings Management to Exceed Thresholds 1978Towards a Positive Theory of the Determination of Accounting Standards.

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