The Relation between Stakeholder’s Claims and Firm’s Depreciation Method Choices
Asian Tax Journal Vol. 13 No. 3 (2012), pp. 141-170
Abstract
Management’s key roles are coordinated with the various interests between the external and internal stakeholders to pursue firms’ growth and profitability and maximize the firm value. Firms often enter into explicit contracts with their stakeholder, but many ongoing relations remain implicit in practice. Implied commitments generally have no legal standing, a firm is able to negotiate with its stakeholders depend in part on the firm's reputation for fulfilling its implied commitments. Stakeholders that related to directly or indirectly the firm's profitability and growth are likely to use to such a firm's financial condition and reported accounting numbers to help assess the firm's reputation for fulfilling its implicit claims, and so will pay attention to that. Implicit claims of the stakeholders over the long term are a significant factor in the firm’s survival and development. Therefore, management's choice of income－increasing accounting methods predict positively associated with the extent to which the firm depends on implicit claims with these stakeholder groups and growth of assets. But such accounting－based choice did little to study. In this study, based on theory and anecdotal evidence, between a firm and its stakeholders；customers, suppliers, employees and short－term creditors create incentives for management to choose long－run income－increasing depreciation methods. This study Bowen et al.(1995) and, by extension, the depreciation method is chose stakeholders in the accounting their implicit claims and growth of assets is to analyze how the affecting. With respect to the implicit claims of the stakeholders selected proxies and the control variables are found to be significant in explaining cross－sectional variation in depreciation methods：firm size, debt ratio, return on assets, internal concentration of ownership, and how to choose the depreciation method with respect to the systematic empirical analysis was associated significantly. A common conclusion in this paper is that a firm is able to negotiate with four specific stakeholders groups；customers, suppliers, employees and short－term creditors depend on its reputation for fulfilling its implicit claims. This provides management with an incentive to choose income－increasing depreciation methods, and strength of this incentive varies with the extent to which the firm depends on implicit claims with its stakeholders, especially customers, suppliers and employees. And supposing that the assets increase or maintain at certain level, these firms usually choose a income －increasing depreciation method.
Keywords
- accounting choice
- depreciation method
- straight－line method
- accelerated method
- earning management
- implicit claims
- stakeholders
- growth of asset
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