Does Impaired Loss Accounting Affect firms' Investment? Evidence from Japan (Japanese)

Iichiro Uesugi, Kentaro Nakajima and Kaoru Hosono

Discussion Papers (Japanese) from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: Asset impairment accounting is a procedure that allows an abrupt decrease of a firm's asset value in case of severe damage. When impairment of the asset occurs, the firm has to decrease its value in the balance sheet and recognize a loss in the income statement. In Japan, many policymakers argued that enforcing such an accounting procedure during a period of severe economic downturn would decrease firms' collateral value and further deteriorate their procurement environment. In contrast, a number of theoretical and empirical studies emphasize the positive aspects of this accounting procedure. This paper examines these arguments by investigating the impact of the introduction of fixed asset impairment accounting on their capital investment and land transactions to find the following. first, there exists no significant difference in the capital investment and land purchases between firms that reported impaired asset losses and those that did not. Second, there exists no significant difference in the way unrealized asset losses affect capital investment between both sets of firms. Third, the land sales ratio is higher among firms that reported impaired losses, especially when they have increased their profit. The result is consistent with the firms'motivation to decrease their taxable income by selling land and realizing the capital losses once they have impaired losses in their balance sheets.

Pages: 37 pages
Date: 2017-04
New Economics Papers: this item is included in nep-acc
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.rieti.go.jp/jp/publications/dp/17j033.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eti:rdpsjp:17033

Access Statistics for this paper

More papers in Discussion Papers (Japanese) from Research Institute of Economy, Trade and Industry (RIETI) Contact information at EDIRC.
Bibliographic data for series maintained by TANIMOTO, Toko ().