Accelerated Depreciation and Investment Decisions by Managers

Accelerated Depreciation
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Anneke Zwart, Student (University), Netherlands
🔥NEW The article Economic consequences of firms’ depreciation method choice: Evidence from capital investments investigates how the way of accounting depreciation is affecting managers’ capital investment decisions. The authors find that accelerated depreciation is related to high levels of capital investments of managers, because of the lower book value that results from accelerated depreciation. Four particular reasons for this effect are mentioned in this article: 1. It might be possible that the book value of an asset affects the perceived utility managers will bring in the future. Assets with higher book values are perceived to deliver a higher future utility, as a result that these assets’ replacement will be impeded. 2. If an asset has a high book value, managers are likely to suppose that replacing the asset is wasteful behavior in that case. For example, not fully utilizing a purchased asset is seen as unpleasant; consumers can even overuse a product so that they at lea (...) Read more? Sign up for free

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  rafael angel calvo arguedas, Business Consultant
 

Accelerated Depreciation not Recommended

Accelerated depreciation generates more cash flow (...)

 
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