Goodwill Related Mandatory Disclosure and the Cost of Equity Capital

Mazzi, Francesco; André, Paúl; Dionysiou, Dionysia; Tsalavoutas, Ioannis

doi:10.2139/ssrn.2464154

Cited by 7 publications

(14 citation statements)

References 131 publications

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“…The European Securities and Market Authority (ESMA) and the chairman of the IASB recently expressed their concerns about accounting for goodwill and insufficient impairment recognition (see Hoogervorst, 2012;ESMA, 2013). Further studies have documented an incomplete and heterogeneous level of compliance with disclosure requirements under IFRS 3 and IAS 36 (Amiraslani et al, 2013;Glaum et al, 2013;Mazzi et al, 2014;Paugam and Ramond, 2014;and Tsalavoutas et al, 2014). The effect of the adoption of IFRS in 2005 on conditional conservatism in Europe is likely dependent on the capacity to apply and enforce various conditional conservatism mechanisms, among which impairment testing principles for non-financial assets play a critical role (Lawrence et al, 2013;Roychowdhury and Martin, 2013).…”

Section: Resultsmentioning

confidence: 99%

“…Further studies have documented an incomplete and heterogeneous 3 For instance, under local GAAP, goodwill was usually amortized over 20 years in the UK, 15 years in Germany, less than 20 years in France, 5 years in Italy, and between 5 and 10 years in Spain. level of compliance with disclosure requirements under IFRS 3 and IAS 36 (Amiraslani et al, 2013;Glaum et al, 2013;Mazzi et al, 2014;Paugam and Ramond, 2014;and Tsalavoutas et al, 2014). level of compliance with disclosure requirements under IFRS 3 and IAS 36 (Amiraslani et al, 2013;Glaum et al, 2013;Mazzi et al, 2014;Paugam and Ramond, 2014;and Tsalavoutas et al, 2014).…”

Section: Introductionmentioning

confidence: 99%

“…4 According to IAS 36 §2: Impairment testing procedures cover all assets but the following: inventories (IAS 2), construction contracts' assets (IAS 11), deferred tax assets (IAS 12), post-employment benefit assets (IAS 19), financial instruments (IAS 39), investment property measured at fair value (IAS 40), biological assets measured at fair value (IAS 41), specific assets that arise from insurance contracts (IFRS 4), and non-current assets held for sale and discontinued operations (IFRS 5). level of compliance with disclosure requirements under IFRS 3 and IAS 36 (Amiraslani et al, 2013;Glaum et al, 2013;Mazzi et al, 2014;Paugam and Ramond, 2014;and Tsalavoutas et al, 2014). Finally, the press recently echoed insufficient and untimely recognition of economic impairment for goodwill (see The Economist, 2013).…”

Section: Introductionmentioning

confidence: 99%

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The Effect of Mandatory IFRS Adoption on Conditional Conservatism in Europe

André

Filip²,

Paugam

2015

Business Fin & Account

125

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We study the effect of mandatory adoption of International Financial Reporting Standards (IFRS) in Europe in 2005 on conditional conservatism. We capture conditional conservatism with a modified version of the Khan and Watts measure (C_Score) that also controls for potential shifts in unconditional conservatism and cost of capital. From a sample of 13,711 firm‐year observations drawn from 16 European countries spanning the 2000–2010 period, we document an overall decline in the degree of conditional conservatism after the adoption of IFRS. We show that the decline in conditional conservatism is less pronounced for countries with high quality audit environments and strong enforcement of compliance with accounting standards using the Brown et al. audit and enforcement index. As asset impairment tests are a key mechanism ensuring conditional conservatism in the IFRS framework, we further examine these. We show that firms booking an asset impairment present a smaller decline in the degree of conditional conservatism relative to firms that do not. We also demonstrate that firms that do not book an asset impairment when evidence suggests the probable need to do so experience a more pronounced reduction in conditional conservatism. We argue that IFRS are conceptually conditionally conservative but that inappropriate application of conditional conservatism principles is likely to prevent financial reporting from reaching the level of conservatism targeted by the International Accounting Standards Board (IASB).

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Section: Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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The Effect of Mandatory IFRS Adoption on Conditional Conservatism in Europe

André

Filip²,

Paugam

2015

Business Fin & Account

125

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“…It is well known that higher quality information on impairment losses mitigates investors’ uncertainties about their future prospects and cash‐generating ability, with potential benefits regarding lower costs of capital (Mazzi et al. ; Iatridis and Senftlechner ) and higher relevance of these items in the market (Baboukardos and Rimmel ). However, previous literature has also documented reduced levels of compliance with disclosure requirements (Carlin et al.…”

Section: Discussionmentioning

confidence: 99%

Impairment Losses: The Impact of First‐time Adoption of the Accounting Standardisation System in Portugal

Oliveira

Azevedo

Oliveira

2018

Australian Accounting Review

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Portugal has been recognised as a code law country, with weak legal enforcement mechanisms and conservative accounting practices. However, since 2005, Portuguese companies have been changing their financial reporting practices to those based on common law institutional logic. In 2010, unlisted Portuguese companies began to apply a new set of accounting standards called the Accounting Standardisation System (Sistema de Normalização Contabilística -SNC) based on International Accounting Standards/International Financial Reporting Standards (IFRS). This paper seeks to analyse the impact of the first-time adoption of the SNC with regard to the accounting treatment of impairment losses. It is found that, to mitigate political costs associated with their public visibility, larger companies present more credible financial statements that reflect their overall true financial and economic condition. This study is a valuable contribution to both users of financial information and domestic standard setters to help them understand and improve the impact of accounting standards. Consistent with Khalil and Simon (2014), it also contributes to the debate on the optimal flexibility permitted by IFRS to improve reporting quality and reduce earnings management.

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“…Based on this premise, another line of research starts to emerge that is somehow related to the impact of goodwill disclosures in the market: this is the one that specifically focuses on the analysis of the impact that compliance with the disclosure requirements of goodwill has on the cost of companies' capital. Mazzi et al (2013), motivated by previous studies suggesting that a higher quality of information can reduce capital cost (e.g., Lambert et al 2007), analyse if the disclosure of information required on goodwill reduces the cost of companies' capital. The study focuses on the reports and consolidated accounts of 222 non-financial companies from 16 EU countries for the period 2008-2011.…”

Section: Impact Of Goodwill Disclosures In the Marketmentioning

confidence: 99%

Goodwill and Mandatory Disclosure Compliance: A Critical Review of the Literature

Carvalho

Rodrigues

Ferreira

2016

Australian Accounting Review

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The aim of this paper is to critically analyse the literature published from 2002 to mid‐2015 on disclosures of goodwill and their respective impairment tests; identify the main contributions of the literature, as well as its limitations; and suggest new approaches for future research. We also present a summary of the main determinants of disclosures on goodwill in the literature as well as the still scarce studies’ conclusions of those disclosures in the market. After a review of the literature, we discuss the need to reinforce enforcement mechanisms, so as to improve the level of compliance of disclosures on goodwill and their impairment tests. The majority of the analysed literature reveals that the information disclosed about goodwill is incomplete and largely heterogeneous, indicating a reduced level of compliance with the disclosures required by accounting standards. The paper may support the development of future empirical studies about goodwill's disclosures, which will bridge the identified gaps in the literature.

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Goodwill Related Mandatory Disclosure and the Cost of Equity Capital

Cited by 7 publications

References 131 publications

The Effect of Mandatory IFRS Adoption on Conditional Conservatism in Europe

The Effect of Mandatory IFRS Adoption on Conditional Conservatism in Europe

Impairment Losses: The Impact of First‐time Adoption of the Accounting Standardisation System in Portugal

Goodwill and Mandatory Disclosure Compliance: A Critical Review of the Literature

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