Disclosure Transparency and Disagreement Among Economic Agents: The Case of Goodwill Impairment

European Accounting Review, Forthcoming

49 Pages Posted: 25 Oct 2019

See all articles by Ionela Andreicovici

Ionela Andreicovici

Frankfurt School of Finance & Management

Anne Jeny

ESSEC Business School; ESSEC Business School - Department of Accounting and Management Control

Daphne Lui

ESSEC Business School

Date Written: October 17, 2019

Abstract

We examine whether more transparent disclosure about goodwill impairment tests conveys useful information to sell-side analysts about the parameters used in the complex and often opaque impairment testing process. Drawing on a sample of European companies from 2006-2014, we construct a unique dataset on the transparency of goodwill impairment disclosure and develop two analyst disagreement measures by extracting analysts’ opinions about firms’ impairment decisions in brokers’ reports. We show that the level of disclosure transparency is negatively associated with both disagreement among analysts, a proxy for information uncertainty, and disagreement between analysts and managers, a proxy for information asymmetry. Further, we find that discount-rate-related disclosure transparency is associated with both types of analyst disagreement, while cash-flow-related disclosure transparency is associated with disagreement between analysts and managers only. Our paper speaks to the usefulness of goodwill impairment test disclosures to analysts, while also highlighting that opportunistic and boilerplate disclosure by some firms hampers the ability to resolve information asymmetry and information uncertainty.

Keywords: Corporate Disclosure; Sell-side Analysts; Goodwill Impairment; Disagreement

JEL Classification: M40; M41

Suggested Citation

Andreicovici, Ionela and Jeny, Anne and Lui, Daphne, Disclosure Transparency and Disagreement Among Economic Agents: The Case of Goodwill Impairment (October 17, 2019). European Accounting Review, Forthcoming . Available at SSRN: https://ssrn.com/abstract=3471103

Ionela Andreicovici (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee, 32-34
32-34
Frankfurt am Main, 60322
Germany

Anne Jeny

ESSEC Business School ( email )

Av Bernard Hirsch
BP 50105
Cergy-Pontoise, 95021
France

ESSEC Business School - Department of Accounting and Management Control ( email )

Av Bernard Hirsch
BP 50105
Cergy-Pontoise, 95021
France

Daphne Lui

ESSEC Business School ( email )

Av Bernard Hirsch
Cergy-Pontoise 95021
France

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