The Value Relevance of Aged Goodwill: A South African Study

Omarjee, Fatima Zahra; Yasseen, Yaeesh; Mohamed, Waheeda

doi:10.25159/1998-8125/3868

Cited by 2 publications

(3 citation statements)

References 55 publications

(114 reference statements)

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“…2. The explanatory power of our model is similar or even higher than other relevance studies such as Oliveira, Rodrigues and Craig, (2010); Omarjee, Yasseen and Mohamed (2019); Li and Taylor (2018). …”

Section: Notessupporting

confidence: 82%

“…They reported that goodwill acquired within-year is not value relevant in contrast to older goodwill balance. Similarly, Omarjee et al (2019) concluded that in South Africa only 2 years ahead goodwill is value relevant, since investors value its subsequent measurement rules implemented by the impairment testing. Additionally, their results suggested that current-year goodwill accounting balances are not value relevant because of the increased complexity of both goodwill's nature and fair value measurement of transferred assets and liabilities of the acquired business.…”

Section: Literature Review and Research Hypothesesmentioning

confidence: 99%

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Debt crisis, age and value relevance of goodwill: evidence from Greece

Pechlivanidis

Ginoglou

Barmpoutis

2022

IJAIM

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Purpose The purpose of this study is to investigate the value relevance of goodwill and its additional aspects during a long-term period in Greece. Furthermore, by implementing two of the most popular value relevance models, the Ohlson’s price and Easton and Harris’ return model, this study examines the impact of goodwill on Greek stock prices from 2007 to 2018, a period of 12 years in which International Financial Reporting Standards (IFRS) are applied. Furthermore, this study analyzes how goodwill’s value relevance changes as it ages and during the Greek debt crisis. Design/methodology/approach In order to test the value relevance of goodwill we implemented two of the most popular value relevance models, Ohlson’s price and Easton and Harris’ return model. Our sample consists of non-financial listed Greek companies that reported positive goodwill accounting balances on their financial statements during the financial period from 2007 to 2018. Finally, we applied fixed-effects regression model to all equations. Findings The results provide evidence that the year-end goodwill accounting balance is value relevant, and that the debt crisis has improved goodwill’s information content. Finally, the empirical findings suggest that only current year acquired goodwill is value relevant compared to older goodwill, and therefore, goodwill’s impact on stock prices is decreasing as it ages. Research limitations/implications A noteworthy limitation of this study is that it focuses on a specific code-law country Greece, which is a relatively small economy compared to the whole Eurozone. This research contributes to the research literature as it confirms other research findings in the European context and specifically that goodwill based on IFRS is value relevant to financial statement users. Additionally, it investigates for the first time how goodwill was affected by the Greek debt crisis. Finally, it contributes to other researcher’s debate concerning the duration of goodwill’s value relevance in a code law environment such as Greece. Practical implications Financial analysts and institutions are provided with more assurance about goodwill’s financial reporting quality to be embedded in the financial evaluation process of corporates. As this research confirms that goodwill should be regarded as an asset, companies should obtain better financial ratings from financial institutions and investors and thus will have better access to equity and debt funding. Originality/value We investigate the value relevance of goodwill in Greece during a long-term period of 12 years. Additionally, our study examines the impact of the Greek debt crisis on the information content of goodwill accounting balances and the period during which accumulated goodwill balances and within-year acquired goodwill maintain its value relevance. Our research could assist accounting standard setters such as the International Accounting Standard Board to evaluate the quality of specific standards such as IFRS 3 “Business Combination” and IAS 38 “Impairment of Assets.”

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Section: Notessupporting

confidence: 82%

Section: Literature Review and Research Hypothesesmentioning

confidence: 99%

Debt crisis, age and value relevance of goodwill: evidence from Greece

Pechlivanidis

Ginoglou

Barmpoutis

2022

IJAIM

View full text Add to dashboard Cite

show abstract

“…This mandated the use of the purchase method and eliminated the amortisation of goodwill over the assessed useful life instead requiring an annual impairment test. International studies indicating that this change has been value relevant are supported by studies by Eloff and de Villiers (2015) and Omarjee and Garnett (2017) that indicates this also applies in the South African context.…”

Section: Theoretical Backgroundmentioning

confidence: 87%

Goodwill impairment testing disclosures – South African compliance in 2018

Day

2019

South African Journal of Accounting Research

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This paper reviews compliance with the IAS 36 goodwill impairment testing disclosure requirements by South African entities included in the All Share Index of the Johannesburg Stock Exchange. A detailed extraction of disclosures provided by entities with material levels of goodwill was compared to the key requirements. The approach taken is grounded in an assumption that the diligence with which preparers attend to visible disclosures acts a "litmus test" of the reliability of the invisible workings of the "black box" of impairment testing. The results are analysed through a critical narrative proposing insights relevant to preparers, auditors, regulators, and standard-setters. Consistent with results of studies in other jurisdictions the disclosures of South African entities are often incomplete and inconsistent, presented in a minimalist, generic, "boiler-plate" fashion considered to be of limited use to decision makers assessing the reliability of impairment testing. This is the first known detailed review of South African levels of compliance with goodwill impairment testing disclosure requirements offered as an initial contribution to assessing the reliability of goodwill balances reported by South African corporate entities.

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The Value Relevance of Aged Goodwill: A South African Study

Cited by 2 publications

References 55 publications

Debt crisis, age and value relevance of goodwill: evidence from Greece

Debt crisis, age and value relevance of goodwill: evidence from Greece

Goodwill impairment testing disclosures – South African compliance in 2018

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