Market Reaction to Goodwill Impairments

Knauer, Thorsten; Wöhrmann, Arnt

doi:10.2139/ssrn.1985477

Cited by 16 publications

(26 citation statements)

References 72 publications

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“…Results from his experiment with managers of Canadian companies show that participants believe managers will be more keen on recognising an impairment if the loss can be reversed upon value recovery, while they will be less keen if they have a bonus plan and reversals are not allowed. The above findings are in line with the stream of market-based research demonstrating that long-lived asset impairments are associated with big bath earnings (Riedl, 2004), while contracting and market incentives are capable of triggering companies' impairment accounting choices (Beatty & Weber, 2006), especially in terms of the timeliness of goodwill impairment (Knauer & Wohrmann, 2015).…”

Section: Academic Evidence Regarding the Implementation Of Impairmentsupporting

confidence: 84%

“…Thus, these results are in line with the finding of Armitage and Marston (2008, p. 323), with regard to finance directors of UK listed firms, that "the majority of interviewees do not see a strong link between the level of disclosure and the cost of equity". Nevertheless, these findings are in direct contrast to the existence of numerous archival studies which examine companies' reporting practices with regard to this topic (e.g., Glaum et al, 2013;Tsalavoutas et al, 2014) and/or the determinants and potential implications of these practices from the users' perspective (e.g., Knauer & Wohrmann, 2015;Mazzi et al, 2016, Paugam & Ramond, 2015.…”

Section: Table 5 About Herecontrasting

confidence: 61%

“…They look at the Danish environment, by analysing the responses in 58 completed questionnaires, in 2006. This is in direct contrast to the existence of numerous archival studies which examine companies' reporting practices with regard to this topic (e.g., Glaum et al, 2013;Tsalavoutas et al, 2014) and/or the determinants and potential implications of these practices from the users' perspective (e.g., Knauer & Wohrmann, 2015;Mazzi et al, 2016, Paugam & Ramond, 2015. 2 We survey Chief Financial Officers (CFOs) of Italian listed firms and provide primary evidence on their perceptions of IAS 36 requirements.…”

Section: Introductionmentioning

confidence: 99%

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Insights on CFOs’ Perceptions about Impairment Testing Under IAS 36

Mazzi

Liberatore

Tsalavoutas

2016

Accounting in Europe

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We survey CFOs of Italian listed companies and examine their views on the complexities involved in implementing IAS 36 requirements and the perceived usefulness of national guidelines aiming at assisting preparers in this respect. We find that IAS 36 is perceived as an atypical standard among IFRS, it demands subjective interpretation, its requirements can be made adaptable to managerial needs and do not limit creative accounting. Further, respondents do not see a strong link between IAS 36 disclosure requirements and market variables, except for stock returns. Moreover, the impairment testing process became more difficult during the recent financial crisis and guidelines issued by the Italian authorities do not appear to assist in implementing the recoverable amount estimation process or compliance with mandatory disclosure. The respondents explicitly call for a revision in IAS 36 and/or issuance of separate guidance. These findings inter alia respond directly to the IASB's current quest on financial statements preparers' concerns about the application of the IAS 36 requirements.

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Section: Academic Evidence Regarding the Implementation Of Impairmentsupporting

confidence: 84%

Section: Table 5 About Herecontrasting

confidence: 61%

Section: Introductionmentioning

confidence: 99%

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Insights on CFOs’ Perceptions about Impairment Testing Under IAS 36

Mazzi

Liberatore

Tsalavoutas

2016

Accounting in Europe

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“…() suggest that the decrease in conditional conservatism (as a measure of timely loss recognition) in Europe after the adoption of IFRS is more pronounced for firms not recording goodwill impairments, and that particularly firms that are likely to avoid goodwill impairments represent an important factor for the decrease in conditional conservatism. Using an event study research design, Knauer and Wöhrmann () examine the information content of unexpected goodwill impairments for a sample of goodwill impairment announcements from European and US firms. Their results indicate that goodwill impairments might not be (fully) timely and that the market reaction to unexpected impairments is stronger for continental European than Anglo‐American countries.…”

Section: Prior Literature and Hypothesesmentioning

confidence: 99%

“…Moreover, the market may anticipate impairments earlier than they are recognized in financial statements. Empirical evidence is mixed, suggesting that goodwill impairments are not always timely and that weaker investor protection and accounting enforcement has a negative impact on timeliness (e.g., Amel‐Zadeh et al ., ; Hamberg and Beisland, ; Knauer and Wöhrmann, ; Glaum et al ., ). Consistent with these findings, this study indicates that goodwill impairments are not recognized in a timely manner and tend to be delayed by at least one to two years.…”

mentioning

confidence: 99%

The Impact of Audit Quality Indicators on the Timeliness of Goodwill Impairments: Evidence from the German Setting

Albersmann

Quick

2020

Abacus

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This study investigates whether goodwill impairments are perceived as timely and whether specific auditor characteristics affect the perceived timeliness. It therefore contributes to central questions in accounting research: is managerial discretion over accounting numbers (accounting choice) good or bad for stakeholders and does audit quality have an impact on this relationship? It is motivated by the IASB's post‐implementation review on business combinations and the Goodwill and Impairment project based on it, the ongoing debate on the decision usefulness of impairment testing, and the question whether auditors have an impact on firms’ reporting of impairment losses. Based on a sample of German listed firms for the period 2006 to 2013, the results indicate that goodwill impairments are not recognized in a timely manner and delayed by at least one to two years. Moreover, the findings suggest that the recognition of impairment losses is influenced by auditor characteristics. In particular, firms seem to report goodwill impairments in a more timely fashion when they are audited by a Big 4 auditor, whereas the timeliness seems to decrease with a higher non‐audit fee ratio and a longer auditor tenure. Moreover, additional analyses indicate that higher audit fees lead to more timely impairments.

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Gender diverse boards and goodwill changes: association between accounting conservatism, gender and governance

Schadewitz

Spohr

2021

J Manag Gov

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We study the relation between board gender diversity and goodwill (GW). GW on the balance sheet is connected to both the firm’s risk-taking and its accounting conservatism which are two popular topics in how gender diversity affects the governance of firms. GW captures the firm’s decision to acquire another business for a price exceeding the received identifiable net assets and the subsequent valuation of the purchase. We propose that board decisions affecting GW could depict information about board gender diversity and its potential effects. Specifically, we examine Nordic listed firms in the period 2009–2018, to determine whether and how female representation on the board of directors is linked to the GW change. Big GW increases are associated with risk-taking and GW write-downs are signs of conservative accounting. Thus, we hypothesize and evidence that firms with substantial GW increases (decreases) are associated with fewer (more) women on the board. These results provide insight on board composition and potentially also on good governance and their consequences for strategic decision-making. Our findings contribute to the board diversity literature in accounting and corporate governance.

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Market Reaction to Goodwill Impairments

Cited by 16 publications

References 72 publications

Insights on CFOs’ Perceptions about Impairment Testing Under IAS 36

Insights on CFOs’ Perceptions about Impairment Testing Under IAS 36

The Impact of Audit Quality Indicators on the Timeliness of Goodwill Impairments: Evidence from the German Setting

Gender diverse boards and goodwill changes: association between accounting conservatism, gender and governance

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