Date of Award

1993

Document Type

Thesis

Publisher

Edith Cowan University

Degree Name

Bachelor of Business (Honours)

Faculty

Faculty of Business

First Supervisor

Theo Christopher

Second Supervisor

Associate Professor Colin Dolley

Abstract

This research replicates with modifications the previous study by Coombes, Otto and Stokes (1993) which examines the economic determinants of the amortisation of identifiable intangible assets (lIAs). The study focuses on the published consolidated annual reports of a sample of top 150 listed Australian companies, ranked by market capitalisation, as at June 1989, over the period 1989 to 1990, whereas the previous study by Coombes et al. (1993) concentrates on the top 150 listed Australian companies, ranked by market capitalisation, as at 30 June, 1988, over the period 1986 to 1989. The empirical evidence of the present research using contracting theory suggests that management's choice of amortising lIAs depends on whether the investment of these assets has a valuable growth option to generate cash flows into the companies. The evidence does not support the practice of lIAs' amortisation in order to reduce covenant limitations under existing debt contracts and future debt raisings, and to cause minimisation of political vulnerability. Support for the profit-based managerial compensation incentives to amortise liAs appears only in 1989, possibly due to the pending ED49 "Accounting for Identifiable Intangible Assets" issued by the Australian Accounting Research Foundation which required systematic amortisation of IIAs. These findings a

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