Determinants of Goodwill Impairment Loss Recognition

Abstract

This study aimed to verify the determinants of goodwill impairment (GOODWIMP) loss recognition in Brazilian companies. For this, a descriptive and documentary study was carried out in which information was collected from databases and explanatory notes using a quantitative approach. The study sample was comprised of Brazilian companies listed on the Thomson database, totaling 91 companies and 346 observations. Data were collected from 2011 to 2014. For the treatment and analysis of the data, logistic regression with panel data was used. The results show that the factors change in management (CHMAN), book-to-market (BM), number of cash generating units (CGU), variation in return on assets (ΔROA) and goodwill (GOODW) were significant in determining GOODWIMP losses. These findings indicate that in addition to economic factors, managers' actions are associated with the recognition of such losses, which can be characterized as incentives for earnings management (EM) practices. Therefore, it is generally concluded that the GOODWIMP losses recognized in the companies analyzed may not only have been used to reduce their assets to recoverable amounts, but also to achieve results consistent with the objectives of managers.

Does the Mark-to-Model Fair Value Measure Make Assets Impairment Noisy?: A Literature Review

“…A higher probability of asset write-offs, according to the accounting approach, was shown by Vogt et al [47], who stated clearly that companies that record asset write-offs are probably more conservative in their accounting policy, as there are significantly smaller differences between net revenue and cash flows for the previous financial year for them. Companies with a more aggressive accounting policy approach usually have a larger difference between net revenue and cash flows.…”

Big bath and goodwill impairment

“…This absence is explained by less information asymmetry between managers and financiers, which would create few incentives to manage results. More recent studies have found no relationship between indebtedness and earnings management practices that use Imp_GW (Avallone & Quagli, 2015;Oak, 2015;Vogt et al, 2016).…”

“…Other authors, notably AbuGhazaleh et al (2011), Avallone and Quagli (2015), Beatty and Weber (2006), Koh (2009), Hamberg et al (2011), Ramanna and Watts (2012), Vogt, Pletsch, Morás's, and Klann (2016), and Zhang (2008), associate indebtedness with options in accounting policy. Beatty and Weber (2006) suggest companies are less susceptible to recognizing Imp_GW when they have less negotiating capacity and accounting changes affect credit agreements.…”

“…As a rule, market value proxies are treated as dependent variables. However, Alciatore, Easton and Spear (2000), Elliot and Shaw (1988), Francis et al (1996), Riedl (2004), and Vogt et al (2016) consider market value as a potentially explanatory variable. Some authors argue that Imp_GW recognition obliges managers to disclose information about fair value and expected future cash flows, which leads to updated investor expectations for future returns (Chen et al, 2008;Jarva, 2009;Lee, 2011;Li et al, 2011).…”

(Management Aspects of the Impairment of Goodwill)

“…Един от най-важните изводи, които правят авторите е, че наред с икономическите показатели, имащи отношение към признаването на загуби от обезценка на активите, се откроява ролята на управленските решения в този процес. (Vogt, M. et al, 2016).…”