An Analysis of Factors Influencing Asset Writedowns

Accounting and Finance, Vol. 38, pp. 157-179, 1998

Posted: 18 May 2010 Last revised: 9 Mar 2017

See all articles by Julie Cotter

Julie Cotter

University of Southern Queensland

Donald J. Stokes

Monash University

Anne Wyatt

Deakin University


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.

Keywords: Asset writedowns, Managerial incentives and constraints

JEL Classification: M41

Suggested Citation

Cotter, Julie and Stokes, Donald and Wyatt, Anne, An Analysis of Factors Influencing Asset Writedowns. Accounting and Finance, Vol. 38, pp. 157-179, 1998, Available at SSRN:

Julie Cotter

University of Southern Queensland ( email )

Australian Centre for Sustainable Business and Dev
Toowoomba, 4350
+61 7 4631 2916 (Phone)
+61 7 4631 1770 (Fax)


Donald Stokes

Monash University ( email )

Department of Accounting and Finance
P O Box 197
Caulfield East, Victoria 3145

Anne Wyatt (Contact Author)

Deakin University ( email )

70 Elgar Road
Melbourne, Victoria 3125
+61436441197 (Phone)


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