Models to measure goodwill impairment

Lander, Gerald H.; Reinstein, Alan

doi:10.1007/bf02295446

Cited by 13 publications

(7 citation statements)

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“…To determine whether impairment should be written down, the recoverable amount should be estimated first. WACC is the most common discount rate determined on a pre‐tax basis when testing goodwill for impairment (Lander and Reinstein ). The WACC formula is given below.…”

Section: Datasets and Research Hypothesesmentioning

confidence: 99%

“…This procedure is completed in two steps. Estimating goodwill or goodwill impairment losses requires the estimation of the expected future cash flows considering that goodwill is an asset with indefinite useful life (Lander and Reinstein ). In step one, the present value of all future free cash flows is calculated using WACC as the discount rate.…”

Section: Datasets and Research Hypothesesmentioning

confidence: 99%

“…In step one, the present value of all future free cash flows is calculated using WACC as the discount rate. In step two, the free cash flows of the indefinite useful life part are determined as perpetuity (Lander and Reinstein ). This study has applied the discounted cash flow method for a period of three years (see Bandyopadhyay et al ; Lüdenbach ).…”

Section: Datasets and Research Hypothesesmentioning

confidence: 99%

“…Here, the study focuses on firms with goodwill and tests whether being audited by a Big 4 auditor affects the expectations of shareholders and lenders and reduces the cost of capital (see Leuz and Verrecchia ). Based on Lander and Reinstein (), the hypothesis and the model used in the study are presented below. H3: Companies that report goodwill and are audited by a Big 4 auditor are likely to display lower cost of capital .

\begin{matrix} true \\ right G W / T A_{i, t} & = & left α + β_{1} {PVFCF}_{i, t + 1} \\ left + β_{2} {PVFCF}_{i, t + 2} + β_{3} {PVFCF}_{i, t + 3} \\ left + β_{4} ((), {PVME}_{i, t + 3} + {PVD}_{italici, italict + italic3}) \\ left + β_{5} ((), M E / T A_{i, t} + D / T A_{i, t}) + β_{6} {WACC}_{italici, italict} \\ left + β_{7} B 4_{i, t} + β_{8} {WACC}_{italici, italict} * italicB 4_{italici, italict} + ɛ \end{matrix}

…”

Section: Datasets and Research Hypothesesmentioning

confidence: 99%

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An Empirical Investigation of Goodwill in Austria: Evidence on Management Change and Cost of Capital

Iatridis

Senftlechner

2014

Australian Accounting Review

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This study assesses whether new chief executive officers (CEOs) or CEOs in their early tenure carry out goodwill impairments more intensively than senior CEOs. Further, it investigates the relationship between cost of capital and goodwill, as well as whether companies that report goodwill and are audited by a Big 4 auditor display lower cost of capital. The findings show that a change in CEO does not significantly lead to higher goodwill impairments. Using Austria as a case study, the study finds that, in the years of their early tenure, CEOs in Austria generally do not adopt goodwill impairment-related opportunistic behaviours. This study indicates that companies that have carried out goodwill impairment tend to display higher cost of capital, reflecting the potential uncertainty about their future prospects and cash generating ability. The findings show that companies that report goodwill and are audited by a Big 4 auditor tend to display lower cost of capital.

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Section: Datasets and Research Hypothesesmentioning

confidence: 99%

Section: Datasets and Research Hypothesesmentioning

confidence: 99%

Section: Datasets and Research Hypothesesmentioning

confidence: 99%

\begin{matrix} true \\ right G W / T A_{i, t} & = & left α + β_{1} {PVFCF}_{i, t + 1} \\ left + β_{2} {PVFCF}_{i, t + 2} + β_{3} {PVFCF}_{i, t + 3} \\ left + β_{4} ((), {PVME}_{i, t + 3} + {PVD}_{italici, italict + italic3}) \\ left + β_{5} ((), M E / T A_{i, t} + D / T A_{i, t}) + β_{6} {WACC}_{italici, italict} \\ left + β_{7} B 4_{i, t} + β_{8} {WACC}_{italici, italict} * italicB 4_{italici, italict} + ɛ \end{matrix}

…”

Section: Datasets and Research Hypothesesmentioning

confidence: 99%

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An Empirical Investigation of Goodwill in Austria: Evidence on Management Change and Cost of Capital

Iatridis

Senftlechner

2014

Australian Accounting Review

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“…The impairment for this asset is calculated as the difference between its accounting value and its recoverable value. Lander and Reinstein (2003) highlight that if the accounting value of goodwill exceeds its recoverable value, it means that it has devalued, and in this case an impairment loss should be recognized.…”

Section: Introductionmentioning

confidence: 99%

Determinants of Goodwill Impairment Loss Recognition

Vogt

Pletsch

Morás

et al. 2016

Rev. contab. finanç.

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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.

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Intangibles Accounting Regulations and the “Global Intangibles Economy”: Belief-Revision, Enforcement Theory and Financial Stability

Nwogugu¹

2019

Complex Systems, Multi-Sided Incentives and Risk Perception in Companies

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Models to measure goodwill impairment

Abstract: Statement of Accounting Standards No. 142 [2001]

Cited by 13 publications

References 1 publication

An Empirical Investigation of Goodwill in Austria: Evidence on Management Change and Cost of Capital

An Empirical Investigation of Goodwill in Austria: Evidence on Management Change and Cost of Capital

Determinants of Goodwill Impairment Loss Recognition

Intangibles Accounting Regulations and the “Global Intangibles Economy”: Belief-Revision, Enforcement Theory and Financial Stability

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