Goodwill Valuations Certified by Independent Experts: Bigger and Cleaner Impairments?

25 Pages Posted: 27 May 2020

See all articles by Miles B. Gietzmann

Miles B. Gietzmann

Bocconi University - Department of Accounting

Ye Wang

School of Banking and Finance, University of International Business and Economics

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Date Written: January/February 2020

Abstract

If firms disclose the use of independent valuation experts to assess the magnitude of goodwill impairments, should investors rationally condition their values on that disclosure? This research shows that firms that disclose the use of an independent valuation expert are more likely to report a higher impairment charge in an impairment year but, critically, after controlling for other determinants, the disclosing firms are less likely to have impairments in following years. Thus, when the use of an independent expert is disclosed, while it is rational for investors to downgrade firm value on the basis of the disclosed (higher) impairment charge in that year, there is simultaneously a reduced need to add an additional discount to anticipate further (strategically) delayed impairment charges. The investors need to consider the likely multi‐period time series properties of impairments, and firms may benefit from using an expert if in anticipation of future related impairments, investors significantly reduce the discount applied.

Keywords: certification, goodwill, impairment testing, intangible assets, SFAS 142, valuation experts

JEL Classification: G32, M41

Suggested Citation

Gietzmann, Miles B. and Wang, Ye, Goodwill Valuations Certified by Independent Experts: Bigger and Cleaner Impairments? (January/February 2020). Journal of Business Finance & Accounting, Vol. 47, Issue 1-2, pp. 27-51, 2020, Available at SSRN: https://ssrn.com/abstract=3605618 or http://dx.doi.org/10.1111/jbfa.12411

Miles B. Gietzmann (Contact Author)

Bocconi University - Department of Accounting ( email )

Via Roentgen 1
Milan, 20136
Italy

Ye Wang

School of Banking and Finance, University of International Business and Economics ( email )

Beijing
China

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