Asset Write-Offs in the Absence of Agency Problems

Using a large sample of small private companies, we show incremental influence of economic incentives over prescriptions from accounting standards by financial statement preparers in a code-law setting with high alignment between financial and tax reporting and no agency problems. Contrary to predictions from standards, more profitable companies are more likely to write-off and the write-off magnitude is greater, reflecting tax minimisation. Larger companies are more likely to write-off, but the magnitude decreases with size, reflecting increasing political costs due to greater visibility to tax authorities. Previous write-off patterns and magnitudes are persistent, reflecting institutional learning linked to regulatory changes. Copyright (c) 2008 The Authors Journal compilation (c) 2008 Blackwell Publishing Ltd.