Goodwill and Stock Price Crash Risk: An International Study

52 Pages Posted: 17 Dec 2019

See all articles by Wen He

Wen He

Monash University

Jeong-Bon Kim

City University of Hong Kong

Chao Kevin Li

University of New South Wales (UNSW)

Yi Si

The School of Management, Xi'an Jiaotong University

Date Written: November 30, 2019

Abstract

Using data from 43 markets around the world, we document that firms with larger goodwill balances have a higher stock price crash risk in future years. The positive association between goodwill balances and future crash risk is stronger for firms with weaker incentives to provide transparent disclosure, in markets with poorer investor protection or weaker accounting and auditing enforcement, and after periodic goodwill amortization was replaced by fair-value- based goodwill impairment. Further evidence suggests that goodwill balances are positively related to a measure of bad news withholding. Overall, the results are consistent with the view that managers have greater tendency to withhold negative information about goodwill and delay the release of information about the economic impairments of goodwill, thereby leading to increasing the likelihood of stock price crash occurrences in the future.

Keywords: Goodwill, intangible assets, accounting standards, stock price crash risk

JEL Classification: G14, G41

Suggested Citation

He, Wen and Kim, Jeong-Bon and Li, Chao and Si, Yi, Goodwill and Stock Price Crash Risk: An International Study (November 30, 2019). Available at SSRN: https://ssrn.com/abstract=3496064 or http://dx.doi.org/10.2139/ssrn.3496064

Wen He

Monash University ( email )

H3.43, Building H, Level 3
Monash University Caulfiled
Melbourne, VIC 3145
Australia

Jeong-Bon Kim (Contact Author)

City University of Hong Kong ( email )

Department of Accountancy
83 Tat Chee Avenue
Kowloon Tong
Hong Kong
852-3442-7909 (Phone)

Chao Li

University of New South Wales (UNSW) ( email )

high street
High St
sydney, NSW 2052
Australia

Yi Si

The School of Management, Xi'an Jiaotong University ( email )

No.28 Xianning West Road
Xi'an, Shaanxi 710049
China

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