Disclosure Transparency and Disagreement Among Economic Agents: The Case of Goodwill Impairment
European Accounting Review, Forthcoming
49 Pages Posted: 25 Oct 2019
Date Written: October 17, 2019
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: Suggested Citation