Determinants of Goodwill Impairment: International Evidence

54 Pages Posted: 22 May 2015 Last revised: 24 Jul 2015

See all articles by Martin Glaum

Martin Glaum

WHU - Otto Beisheim School of Management

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School

Sven Wyrwa

International School of Management ISM (Frankfurt)

Date Written: May 20, 2015

Abstract

This study investigates the determinants of firms’ decision to impair goodwill under IFRS. Our empirical analysis is based on data for the years 2005 to 2011 for 8,110 non-financial firm-years and 1,358 financial firm-years from 21 countries where firms apply IFRS. We specifically investigate which role national enforcement systems play for firms’ decisions whether or not to impair goodwill. We find that firms’ decisions are related to measures of performance, but also to proxies for managerial and firm-level incentives. We also find that goodwill impairment is associated with lagged stock-market return, suggesting that firms tend to delay necessary impairment. Further investigations reveal that the timeliness of goodwill impairment depends on the strength of national accounting and auditing enforcement systems: in countries with weak enforcement systems firms tend to delay necessary goodwill impairments, while firms in countries with strong enforcement systems tend to write off goodwill in a timely fashion, both before and after the Financial Crisis. However, even in countries with strict enforcement impairment decisions appear to be influenced by managerial and firm-level incentives, such as CEO reputation concerns and by management’s preferences for smooth earnings.

Keywords: IFRS, goodwill, impairment testing, timeliness, enforcement, managerial discretion

JEL Classification: M4, M40, M41, M42, K2, K42, G3, G34

Suggested Citation

Glaum, Martin and Landsman, Wayne R. and Wyrwa, Sven, Determinants of Goodwill Impairment: International Evidence (May 20, 2015). Available at SSRN: https://ssrn.com/abstract=2608425 or http://dx.doi.org/10.2139/ssrn.2608425

Martin Glaum (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar
Germany
+49 261 - 6509-315 (Phone)

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-3221 (Phone)
919-962-4727 (Fax)

Sven Wyrwa

International School of Management ISM (Frankfurt) ( email )

Mörfelder Landstraße 55
Frankfurt am Main, 60598
Germany

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