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Economic consequences of firms' depreciation method choice: Evidence from capital investments

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  • Jackson, Scott B.
  • (Kelvin) Liu, Xiaotao
  • Cecchini, Mark
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    Abstract

    This study identifies several interrelated reasons why firms' depreciation method choice is likely to influence managers' capital investment decisions. We find that firms that use accelerated depreciation make significantly larger capital investments than firms that use straight-line depreciation. Further, we find that there has been a migration away from accelerated depreciation to straight-line depreciation over the past two decades. Firms that make such accounting changes make smaller capital investments in the post-change periods than in the pre-change periods. These results suggest that a choice made for external financial reporting purposes influences managers' capital investment decisions.

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    File URL: http://www.sciencedirect.com/science/article/B6V87-4WGMB30-1/2/3f8f46ed15111c1c79492060ee4a94d9
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Accounting and Economics.

    Volume (Year): 48 (2009)
    Issue (Month): 1 (October)
    Pages: 54-68

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    Handle: RePEc:eee:jaecon:v:48:y:2009:i:1:p:54-68

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    Web page: http://www.elsevier.com/locate/jae

    Related research

    Keywords: Depreciation method choice Capital investments Straight-line depreciation Accelerated depreciation;

    References

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