Investment Opportunity Set Influence on Accounting Policies and Estimates: New Zealand Evidence

Posted: 14 Apr 1997

Date Written: March 1997


The firm's investment opportunity set (IOS) reflects the opportunities available to the firm due to the nature of its investments. Skinner (1993) finds that IOS variables help explain accounting choices, both by themselves and in combination with traditional opportunism variables. It is possible that the US regulatory environment constrains the extent to which an IOS effect can be observed and that Skinner's results are time-and-place specific. This study examines the association between IOS, managerial opportunism and accounting policy choice. By taking advantage of institutional and temporal differences, we extend Skinner's study to an international context and find that New Zealand firms' investment opportunities are associated with accounting decisions. This association is additional to any direct contracting effect usually identified as opportunistic. Furthermore, levels of growth opportunities are associated with accounting for growth opportunities while levels of assets in place are associated more significantly with the accounting for assets already in place. The study uses tests to discern influences on accounting when the dependent variables incorporate the effects of not only accounting policies, but also estimates (e.g., of assets' useful lives). The high explanatory power of the models indicates that future studies could benefit from examining more subtle and less visible means of affecting reported earnings and asset levels than accounting policies in isolation. Furthermore, the findings indicate that it is possible to directly relate discretion concerning individual accounting issues to particular investment opportunities or contracts.

JEL Classification: M41, M43

Suggested Citation

Bradbury, Michael E. and Godrey, Jayne M., Investment Opportunity Set Influence on Accounting Policies and Estimates: New Zealand Evidence (March 1997). Available at SSRN:

Michael E. Bradbury

Massey University ( email )

School of Accountancy
Private Bag 102 904
New Zealand
64 9 414 0800 (Phone)
64 9 441 8133 (Fax)

Jayne M. Godrey (Contact Author)

University of Tasmania ( email )

Hobart 7001
(+61) 3 6226 2266 (Phone)
(+61) 3 6226 7845 (Fax)

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