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Do taxes affect firmsÕ asset write-downs? Evidence from discretionary write-downs of equity investments in Italy


  • Giampaolo Arachi

    () (Department of Management, Economics, Mathematics and Statistics; University of Salento)

  • Valeria Bucci

    () (Department of Management, Economics, Mathematics and Statistics; University of Salento)


If assets write-downs are tax-deductible from the corporate income tax base, companies could discretionally use them to reduce their tax burden. This paper aims at investigating whether and to what extent taxes affect the firmÕs discretionary choice to write-down long term equity investments. The analysis is based on panel data for Italian companies. In the period 1998Ð2006 the Italian corporate income tax was reformed several times. In particular, the tax deductibility of write-downs of equity investment was repealed in 2004. The paper exploits the ensuing high cross-sectional and timeseries variation in the marginal tax rate (measured before the decision to write-down equity investments) in order to identify tax effects. The econometric analysis delivers strong evidence that taxes affect the decision to write-down. The paper also provides evidence of an interaction between tax minimization, financial reporting costs and agency costs.

Suggested Citation

  • Giampaolo Arachi & Valeria Bucci, 2013. "Do taxes affect firmsÕ asset write-downs? Evidence from discretionary write-downs of equity investments in Italy," Working Papers EC0002, University of Salento; Department of Management, Economics, Mathematics and Statistics, revised Dec 2013.
  • Handle: RePEc:lcc:wpaper:ec0002

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    References listed on IDEAS

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    More about this item


    corporate taxation; asset impairments; write-downs of equity investments; tax planning; financial reporting; agency relationship;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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