The Financial Reporting Effects of Tax-Deductible Goodwill Impairments
64 Pages Posted: 1 Nov 2016 Last revised: 2 Apr 2018
Date Written: March 27, 2018
We investigate how tax-deductible goodwill impairments influence financial reporting decisions. Unlike most countries, Luxembourg allows tax deductions for financial statement goodwill impairments. We predict and find that large multinational firms with subsidiaries in Luxembourg are more likely to write down goodwill, and write down larger amounts of goodwill on average, than large multinational firms without subsidiaries in Luxembourg. However, conditional on impairing goodwill, the existence of a Luxembourg subsidiary does not affect the amount of each impairment. Consistent with the tax deductibility of goodwill impairments reducing the financial reporting costs of impairments, the relation between Luxembourg subsidiaries and impairments is focused in firms that have stronger financial reporting incentives to avoid impairments. We contribute to the literatures on interactions between book and tax reporting, determinants of goodwill impairments, effects of book-tax conformity, and specific mechanisms through which firms avoid tax.
Keywords: Tax Havens, Goodwill, Impairments, Write-Offs, Book-Tax Conformity, Tax Planning, Tax Avoidance
JEL Classification: F23, H20, M41
Suggested Citation: Suggested Citation