Do Firms Manage Fair Value Estimates? An Examination of SFAS 142 Goodwill Impairments
57 Pages Posted: 6 Feb 2008 Last revised: 9 Sep 2009
Date Written: September 7, 2009
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: Suggested Citation