Optimal Impairment Rules

Posted: 28 Apr 2009

See all articles by Robert F. Göx

Robert F. Göx

University of Zurich - Department of Business Administration (IBW); University of Zurich - Managerial Accounting; University of Zurich - Faculty of Economics, Business Administration and Information Technology

Alfred Wagenhofer

University of Graz

Multiple version iconThere are 2 versions of this paper

Date Written: April 28, 2009

Abstract

We study the optimal accounting policy of a financially constrained firm that pledges assets to raise debt capital for financing a risky project. The accounting system provides information about the value of the collateral. Absent accounting regulation, the optimal accounting system is conditionally conservative: it recognizes an impairment loss if the asset value is below a certain threshold, but never reports unrealized gains. We describe the optimal impairment rule and the optimal precision of the accounting information, and we provide comparative statics that lead to testable predictions on the determinants of impairment rules.

Keywords: Conservatism, Impairment, Debt contracting, Asset measurement

JEL Classification: G32, M41, M44

Suggested Citation

Goex, Robert F. and Wagenhofer, Alfred, Optimal Impairment Rules (April 28, 2009). Journal of Accounting & Economics (JAE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1396147

Robert F. Goex

University of Zurich - Department of Business Administration (IBW) ( email )

Plattenstrasse 14
Zurich, 8032
Switzerland

University of Zurich - Managerial Accounting ( email )

Plattenstrasse 14
Zurich, CH-8032
Switzerland

University of Zurich - Faculty of Economics, Business Administration and Information Technology ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland

Alfred Wagenhofer (Contact Author)

University of Graz ( email )

Austria
+43 316 380 3500 (Phone)
+43 316 380 9565 (Fax)

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