Investment Opportunity Set Influence on Goodwill Amortization

Posted: 22 Aug 2003

See all articles by Michael E. Bradbury

Michael E. Bradbury

Massey University

Jayne M. Godfrey

University of Auckland

Ping-Sheng Koh

ESSEC Business School


Using an institutional setting where GAAP is relatively unconstrained, we examine whether managers use their goodwill accounting discretion to reflect firms' growth options that are not otherwise captured in reported identifiable assets. We employ a continuous dependent variable to find that accounting discretion is exercised through estimates of goodwill's economic life (amortization period) in a manner that reflects the firms' underlying growth options. These results are consistent with managers using accounting techniques to reflect firms' investment opportunity sets (IOS). We find that the goodwill accounting decision has a stronger association with IOS variables than with traditionally applied contracting variables. Also, the IOS variables make a greater marginal contribution to the explanatory power of models of goodwill amortization periods than do traditional contracting or opportunism variables.

JEL Classification: M41, M43, C21, D23

Suggested Citation

Bradbury, Michael E. and Godfrey, Jayne M. and Koh, Ping-Sheng, Investment Opportunity Set Influence on Goodwill Amortization. Asia-Pacific Journal of Accounting & Economics, Vol. 10 No. 1, June 2003, Available at SSRN:

Michael E. Bradbury

Massey University ( email )

School of Accountancy
Private Bag 102 904
New Zealand
64 9 414 0800 (Phone)
64 9 441 8133 (Fax)

Jayne M. Godfrey (Contact Author)

University of Auckland ( email )

12 Grafton Road
Auckland, 1010
New Zealand

Ping-Sheng Koh

ESSEC Business School ( email )

5 Nepal Park
+65 6413 9737 (Phone)

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