Goodwill Impairment: The Effects of Public Enforcement and Monitoring by Institutional Investors
Forthcoming: The Accounting Review
63 Pages Posted: 28 Dec 2017
Date Written: December 23, 2017
This study investigates the determinants of goodwill impairment decisions by firms applying IFRS based on a comprehensive sample of stock-listed firms from 21 countries. Multivariate logistical regression findings indicate that goodwill impairment incidence is negatively associated with economic performance, but also related to proxies for managerial and firm-level incentives. In addition, whereas goodwill impairment tends to be timely for firms in high enforcement countries, firms in low enforcement countries tend to be less responsive to declines in the economic value of goodwill; CEO compensation concerns affect the impairment decision for firms in low enforcement; and CEO reputation concerns and management preference for smooth earnings influence goodwill impairment decisions in high as well as low enforcement countries. We also find that private monitoring through institutional investors substitute for public enforcement in the context of goodwill impairment when a country’s enforcement regime is relatively weak.
Keywords: IFRS, Goodwill, Impairment Testing, Timeliness, Enforcement, Managerial Discretion, Institutional Investors
JEL Classification: M4, M40, M41, M42, K2, K42, G3, G34
Suggested Citation: Suggested Citation