Segment Management to Delay Goodwill Write-downs

49 Pages Posted: 30 Jul 2014 Last revised: 9 Jul 2018

See all articles by Henry Laurion

Henry Laurion

University of Colorado at Boulder - Department of Accounting

James Ryans

London Business School

Samuel T. Tan

Singapore Management University

Date Written: September 12, 2014

Abstract

Managers can use the flexibility inherent in the accounting standards for segment reporting to delay or avoid goodwill write-downs. Goodwill is tested for impairment at the reporting unit level and the accounting standards define reporting units as operating segments or components of operating segments. Since operating segments are defined according to the management approach, or how the chief operating decision maker chooses to view the firm's operations, a firm can manage its segment boundaries to allocate acquired goodwill in a way that delays or avoids impairments. We find that in acquisition years, firms with higher book-to-market ratios are more likely to increase the number of reported segments, and that these high book-to-market, segment-increasing firms are associated with delayed goodwill impairments.

Keywords: Goodwill impairment, segment reporting, earnings management

JEL Classification: M41, G32, G34

Suggested Citation

Laurion, Henry and Ryans, James and Tan, Samuel T., Segment Management to Delay Goodwill Write-downs (September 12, 2014). Available at SSRN: https://ssrn.com/abstract=2473896 or http://dx.doi.org/10.2139/ssrn.2473896

Henry Laurion

University of Colorado at Boulder - Department of Accounting ( email )

419 UCB
Boulder, CO 80309-0419
United States

James Ryans

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom

HOME PAGE: http://www.london.edu

Samuel T. Tan (Contact Author)

Singapore Management University ( email )

60 Stamford Road
Singapore 178900
Singapore

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