The Value-Relevance of Goodwill Write-Offs

Posted: 22 Sep 1997

See all articles by Steven L. Henning

Steven L. Henning

Southern Methodist University

Toby Stock

Ohio University - School of Accountancy

Date Written: June 1997


The SEC and the FASB recently have expressed concern that firms write-off some goodwill long after it becomes valueless. This study investigates the value-relevance of goodwill write-offs by considering different types of goodwill and possible market anticipation of goodwill write-offs. We find that goodwill write-offs lack value-relevance when researchers ignore the source of the goodwill. Conversely, we find that write-offs of some types of goodwill are value-relevant. Specifically, write-offs of goodwill related to intangible assets valued by the market are associated with both advance and contemporaneous stock price decreases. In addition, firms performing better (worse) than industry medians drive the contemporaneous (advance) reaction, consistent with market surprise to the write-off for firms reporting strong results and anticipation of the write-off for firms reporting relatively poor results. Write-offs of goodwill related to control premiums paid for target firms are not associated with stock price changes. Write-offs of "tax-related" goodwill (amounts written off when purchasing firms realize tax benefits from target firm net operating losses) are associated with stock price increases. Further, we find evidence that the market cannot anticipate tax-related goodwill write-offs for firms that consolidate after the acquisition because tax law imposes information requirements on the market that inhibit such anticipation.

JEL Classification: G34, M41, M44

Suggested Citation

Henning, Steven L. and Stock, Toby, The Value-Relevance of Goodwill Write-Offs (June 1997). Available at SSRN:

Steven L. Henning (Contact Author)

Southern Methodist University ( email )

6212 Bishop Blvd.
Cox School of Business Department of Accounting
Dallas, TX 75275
214-768-3082 (Phone)
214-768-4099 (Fax)

Toby Stock

Ohio University - School of Accountancy ( email )

College of Business Administration
526 Copeland Hall
Athens, OH 45701
United States
740-593-2016 (Phone)
740-593-2412 (Fax)

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