The Financial Reporting Effects of Tax-Deductible Goodwill Impairments

64 Pages Posted: 1 Nov 2016 Last revised: 2 Apr 2018

Sarah Blechinger

University of Connecticut

Miles A. Romney

Florida State University; Michigan State University

Steven Utke

University of Connecticut - Department of Accounting

Date Written: March 27, 2018

Abstract

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

Blechinger, Sarah and Romney, Miles A. and Utke, Steven, The Financial Reporting Effects of Tax-Deductible Goodwill Impairments (March 27, 2018). Available at SSRN: https://ssrn.com/abstract=2862196 or http://dx.doi.org/10.2139/ssrn.2862196

Sarah Blechinger

University of Connecticut ( email )

Storrs, CT 06269-1063
United States

Miles A. Romney

Florida State University ( email )

Tallahasse, FL 32306
United States

Michigan State University ( email )

Agriculture Hall
East Lansing, MI 48824-1122
United States

Steven Utke (Contact Author)

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
151
rank
177,508
Abstract Views
589
PlumX