Goodwill Valuation Effects of the Initial Adoption of SFAS 142

34 Pages Posted: 22 Apr 2004 Last revised: 9 Feb 2010

See all articles by Changling Chen

Changling Chen

University of Waterloo - School of Accounting and Finance

Mark J. Kohlbeck

Florida Atlantic University - School of Accounting

Terry Warfield

University of Wisconsin - Wisconsin School of Business

Date Written: April 1, 2004

Abstract

We investigate the initial adoption of Statement of Financial Accounting Standards no. 142, Goodwill and Other Intangible Assets, (SFAS 142). Using a sample of firms reporting goodwill at yearend 2001, we provide evidence on the timeliness and value relevance of the reported goodwill and goodwill impairments subsequent to the adoption of SFAS 142. Our results indicate that the adoption impairment was partially impounded in prices prior to 2002 and also represented new information to the market in 2002. The subsequent year 1 impairment primarily provides new information to the market (although some of the impairment is anticipated in the prior year). We also report increased value relevance associated with the adoption of SFAS 142. Our evidence documents a net benefit associated with SFAS 142 and is consistent with the FASB's objectives in promulgating the new standard.

Keywords: Goodwill, impairment, valuation

JEL Classification: M41, M45, G12

Suggested Citation

Chen, Changling and Kohlbeck, Mark J. and Warfield, Terry D., Goodwill Valuation Effects of the Initial Adoption of SFAS 142 (April 1, 2004). Available at SSRN: https://ssrn.com/abstract=534484 or http://dx.doi.org/10.2139/ssrn.534484

Changling Chen

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1 N2L 3G1
Canada

Mark J. Kohlbeck (Contact Author)

Florida Atlantic University - School of Accounting ( email )

777 Glades Avenue
KH 119
Boca Raton, FL 33431-0991
United States
561-297-1363 (Phone)

Terry D. Warfield

University of Wisconsin - Wisconsin School of Business ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

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