Do Firms Manage Fair Value Estimates? An Examination of SFAS 142 Goodwill Impairments

57 Pages Posted: 6 Feb 2008 Last revised: 9 Sep 2009

See all articles by Henry Jarva

Henry Jarva

Aalto University - School of Business

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Date Written: September 7, 2009

Abstract

I find that goodwill write-offs under Statement of Financial Accounting Standards No. 142 (SFAS 142) are associated with future expected cash flows as mandated by the standard. However, there are indications that goodwill write-offs lag behind the economic impairment of goodwill. Additional analysis reveals that the association between goodwill write-offs and future cash flows is insignificant for firms with contemporaneous restructuring. I hypothesize that this finding is due to agency-based motives. Finally, I examine a sample of non-impairment firms in which there are indications that goodwill is impaired. I fail to find convincing evidence that these firms are opportunistically avoiding impairments.

Keywords: accounting conservatism, fair value accounting, write-offs

JEL Classification: M41, M43, M44, G12

Suggested Citation

Jarva, Henry, Do Firms Manage Fair Value Estimates? An Examination of SFAS 142 Goodwill Impairments (September 7, 2009). Available at SSRN: https://ssrn.com/abstract=1090836 or http://dx.doi.org/10.2139/ssrn.1090836

Henry Jarva (Contact Author)

Aalto University - School of Business ( email )

P.O. Box 21210
AALTO, FI-00076
Finland

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