How Do Accelerated Depreciation Rules Affect Financially (Un)constrained Firms? A Crisis and Non-Crisis Comparison

• In Event: Pushing the Envelope: Corporate Tax Aggressiveness and Policy

Abstract

We investigate the impact of accelerated depreciation rules on investment and corporate risk-taking in financially constrained and unconstrained firms across European Union countries during three key periods: the global financial crisis, the COVID-19 pandemic, and the non-crisis period. Using a country-cohort stacked difference-in-differences (DID) approach, we find limited investment responses in both firms during the financial crisis, with both groups reallocating spending toward intangibles and labour investment. In contrast, during the COVID-19 recovery, we find that unconstrained firms increase broad types of investments, while constrained firms focus on capital investment. The most pronounced effects appear in non-crisis periods, where both groups increase investment. In addition, we document that both firms increase risk-taking only during the non-crisis period. These findings suggest that accelerated depreciation can be an important measure to stimulate investment for constrained and unconstrained firms depending on the macroeconomic condition.

Authors

• Matthias Petutschnig, Vienna University of Economics and Business

• Khairunnisa Ridwan, Vienna University of Economics and Business