Do Managers Benefit from Delayed Goodwill Impairments?

34 Pages Posted: 4 Jul 2009 Last revised: 20 Aug 2012

See all articles by Karl A. Muller

Karl A. Muller

Pennsylvania State University - Department of Accounting

Monica Neamtiu

City University of New York - Stan Ross Department of Accountancy

Eddie Riedl

Boston University - Questrom School of Business

Date Written: July 31, 2012

Abstract

Prior research provides evidence that managers delay the reporting of goodwill impairments. This study builds on this evidence by investigating whether managers use their private information regarding goodwill impairments to profit from trading in their own firms’ shares. We find evidence of abnormal selling of shares by corporate insiders in the two years preceding formal announcement of goodwill impairments. In addition, we find that managers’ selling activity is positively associated with subsequent stock price declines. We find similar evidence using a sample of firms where price discovery occurs relatively close to impairment announcements, suggesting that our findings are not attributable to insider trading on general pessimism or other negative news unrelated to reported goodwill impairments. Overall, these findings provide evidence that managers benefit from delayed goodwill impairments, and confirm long-standing concerns by the SEC regarding significant information asymmetries between managers and firm outsiders regarding goodwill impairments.

Keywords: goodwill, impairment, agency cost, insider trading, SFAS 142

JEL Classification: M41

Suggested Citation

Muller, Karl A. and Neamtiu, Monica and Riedl, Edward J., Do Managers Benefit from Delayed Goodwill Impairments? (July 31, 2012). Available at SSRN: https://ssrn.com/abstract=1429615 or http://dx.doi.org/10.2139/ssrn.1429615

Karl A. Muller

Pennsylvania State University - Department of Accounting ( email )

Smeal College of Business
384 Business Building
University Park, PA 16802-3306
United States
814-865-0202 (Phone)
814-863-8393 (Fax)

Monica Neamtiu

City University of New York - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States

Edward J. Riedl (Contact Author)

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States
617-353-2317 (Phone)

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