The impairment test of goodwill: an empirical analysis of incentives for earnings management in Italian publicly traded companies

Korošec, Bojana; Jerman, Mateja; Tominc, Polona

doi:10.1080/1331677x.2016.1164923

Cited by 6 publications

(6 citation statements)

References 30 publications

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“…The vast majority sustain that impairment reflects the underlying economic situation of a business as claimed by FASB and IASB (FASB, 2001;IASB, 2004aIASB, , 2004c, but they also assert that firms exercise the discretion inherent in the implementation of the impairment test, both in the SFAS context (see for example Beatty & Weber, 2006;Kim & Bay, 2017;Sun, 2016;Zang, 2008) and in IFRS contexts (see for example Abdul, 2015;AbuGhazaleh, et al, 2011;Korosec, et al, 2016;Vogt, et al, 2016). Three decades ago authors such as Zucca and Campbell (1992) and Rees et al (1996) already pointed out the existence of opportunistic behaviours when firms have to recognise a write-down.…”

Section: Research Line 4: Determinants Of Goodwill Impairmentmentioning

confidence: 99%

“…Stronger governance enhances the associations between economic factors and goodwill impairment. Strong governance cannot completely eliminate the opportunistic use of discretion in an impairment decision, especially when pre-impairment income is negative, and when the impairment occurs in the first year of a CEO's tenure Korosec et al (2016) Earnings…”

Section: Logit and Tobit Regressionsmentioning

confidence: 99%

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Accounting for goodwill: A literature review

Martínez¹,

Rubio²,

Morales³

2023

10.5267/j.ac

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This paper critically reviews the main empirical research on goodwill accounting with the purpose of informing and contributing to current debates: the application of a systematic amortisation plus an impairment when required (amortisation model) or an annual impairment-only test (impairment model). Using the main databases (ABI inform, ProQuest Central, Emerald, Science Direct, Scopus and Google Scholar), this critical review highlights the difficulty to resolve doubts at this stage. Arguments for and against the amortisation and impairment models are found. Nevertheless, going back to a systematic amortisation does not seem to be the solution but the impairment test model is eliminated. We also note that there is more room for improvement of the impairment model. Thus, we provide some guidelines and recommendations to improve it. Finally, we find that further investigation can be carried out to fill the gaps identified in the literature and we make recommendations for future research projects.

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Section: Research Line 4: Determinants Of Goodwill Impairmentmentioning

confidence: 99%

Section: Logit and Tobit Regressionsmentioning

confidence: 99%

Accounting for goodwill: A literature review

Martínez¹,

Rubio²,

Morales³

2023

10.5267/j.ac

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“…Bisogno (2015) showed a positive relationship between discretionary accruals and the variation of goodwill in Italian companies. Korošec, Jerman and Tominc (2016) indicated some incentives for earnings management associated with the recognition of goodwill impairment losses.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Intangible Assets, Goodwill and Earnings Management: Evidence from France and the Uk

Kimouche

2022

Folia Oeconomica Stetinensia

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Research background: The literature has argued that accounting for intangible assets and goodwill provides a wide range for managers to manipulate earnings. Purpose: This paper aims to investigate the impact of accounting treatment of intangible assets and goodwill on earnings management. Research methodology: The study included 115 French companies and 100 UK companies, during 2011–2019, employing multiple regression, where earnings management was measured through discretionary accruals; while accounting for intangibles and goodwill was divided into the capitalization and decapitalization of intangible assets, recognition and derecognition of goodwill, and depreciation and impairment of intangible assets and goodwill. Results: According to the results, accounting for intangible assets and goodwill has an impact on earnings management, while it is used differently between French and UK companies. In France, companies employ intangible assets capitalization to manipulate earnings, while UK companies use intangible assets capitalization and goodwill recognition. Novelty: This study provides supplementary evidence for standards setters, managers, and auditors about the contribution of accounting for intangible assets and goodwill in the quality of financial reporting and explores the new tools and practices of earnings management.

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“…That is, on one hand, more indebted firms may avoid recognizing impairments with the aim of not violating debt contract covenants (Hassine & Jilani, 2017;Ramanna & Watts, 2012), given that if the covenants are violated the firm may face several consequences, such as a bad reputation, greater difficulty in obtaining loans and higher financing costs. On the other hand, firms with higher debt levels may be under tighter control by creditors and investors, leaving less room for earnings management in impairment decisions (Elliott & Shaw, 1988;Korošec, Jerman, & Tominc, 2016;Saastamoinen & Pajunen, 2016;Strong & Meyer, 1987), which may lead to higher impairment recognition. Thus, we have no expectation regarding the coefficient of the DEBT variable.…”

Section: Models and Variablesmentioning

confidence: 99%

Financial Crisis and Impairment Recognition in Non-Financial Assets

Gaio

Gonçalves

Pereira

2021

RBGN

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Purpose -To analyse the impact of the financial crisis on the recognition of non-financial asset impairments in European listed companies.Theoretical framework -The study explores the impact of the theory of measuring the economic value of non-financial assets on managers' decisions to recognize impairments, especially in the context of an economic crisis.Design/methodology/approach -Logit and ordinary least squares models were estimated to analyse the probability of recognition and the amount of impairment recognized, respectively, over a 10-year period.Findings -The results show that European companies recognized less impairments during the crisis, including companies in countries that have used external financial aid, suggesting that managers may use impairment recognition as a way of practicing earnings management.Research Practical & Social implications -The results are of interest to several stakeholders, namely: creditors, investors, financial market regulators, entities that prepare and oversee the application of accounting and auditing standards, and ultimately European leaders in terms of structural reforms and investor protection laws.Originality/value -The study contributes to the literature that analyses the impact of the financial crisis on the recognition of impairments in non-financial assets and, in particular, in the context of greater financial fragility. It also contributes to the literature on the use of discretion in the recognition of impairments and earnings management practices. Moreover, it adds to the theoretical debate regarding the principles of measurement in the context of impairment, and how this may affect assessments of the economic values of non-financial assets.

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The impairment test of goodwill: an empirical analysis of incentives for earnings management in Italian publicly traded companies

Cited by 6 publications

References 30 publications

Accounting for goodwill: A literature review

Accounting for goodwill: A literature review

Intangible Assets, Goodwill and Earnings Management: Evidence from France and the Uk

Financial Crisis and Impairment Recognition in Non-Financial Assets

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