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

28 Pages Posted: 11 Nov 2009

See all articles by Henry Jarva

Henry Jarva

Hanken School of Economics

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Date Written: 2009-07

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.

Suggested Citation

Jarva, Henry, Do Firms Manage Fair Value Estimates? An Examination of SFAS 142 Goodwill Impairments (2009-07). Journal of Business Finance & Accounting, Vol. 36, Issue 9-10, pp. 1059-1086, November/December 2009, Available at SSRN: https://ssrn.com/abstract=1503667 or http://dx.doi.org/10.1111/j.1468-5957.2009.02169.x

Henry Jarva (Contact Author)

Hanken School of Economics ( email )

PB 287
Helsinki, Vaasa 65101
Finland

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