Accelerated Depreciation and Investment Decisions by Managers

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Accelerated Depreciation and Investment Decisions by Managers
Anneke Zwart, Student (University), Netherlands, Moderator
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 ...Sign up

Accelerated Depreciation not Recommended
rafael angel calvo arguedas, Business Consultant, Member
Accelerated depreciation generates more cash flow and may not be recommended for sound financial management of the company, both at the operational or...Sign up


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