The relative and incremental value relevance of goodwill before and after SFAS No. 142 |
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| Institution: | 1. School of Business, University of North Carolina at Pembroke, 1 University Drive, PO Box 1510, Pembroke, NC 28372, USA;2. University of Missouri – St. Louis, 210 Anheuser-Busch Hall, 1 University Blvd., St. Louis, MO 63121, USA;1. School of Accountancy, Central University of Finance and Economics, Beijing 100081, China;2. SKEMA Business School, 99 Ren’ai Road, Suzhou 215123, China;1. Kindai University, Faculty of Business Administration, 3-4-1 Kowakae, Higashiosaka City, Osaka 577-8502 Japan;2. Kobe University, Graduate School of Business Administration, 2-1 Rokkodai, Nada, Kobe, Hyogo 657-8501, Japan;1. School of Accountancy, College of Business, Ohio University, Copeland Hall 638, 1 Ohio University Drive, Athens, OH 45701-2979, United States;2. School of Accountancy, Robert C. Vackar College of Business and Entrepreneurship, University of Texas Rio Grande Valley, 1 West University Blvd., Brownsville, TX 78520, United States;3. Department of Accounting, Economics, and Finance, School of Business and Management, SUNY Brockport, 350 New Campus Drive, Brockport, NY 14420, United States;4. School of Accounting, Rawls College of Business, Texas Tech University, 703 Flint Ave., Lubbock, TX 79409, United States;1. School of Economics, Zhejiang University of Technology, Hangzhou, Zhejiang, China;2. College of Business, University of Rhode Island, Kingston, Rhode Island, U.S.A., and School of Business, Sun Yat-Sen University, Guangzhou, Guangdong, China;3. Lingnan College, Sun Yat-Sen University, Guangzhou, Guangdong, China;4. School of Economics and Management, Tongji University, Shanghai, China;1. Bundeswehr University Munich, Germany;2. LMU Munich School of Management, Germany;1. Data & Text Mining Laboratory, Jerusalem School of Business Administration, Israel;2. Rutgers Business School – Newark and New Brunswick, Rutgers University, Department of Accounting and Information Systems, United States;3. Stern School of Business Administration, New York University and, QMA LLC, United States;4. Freeman College of Management, Bucknell University, United States |
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| Abstract: | We explore the value relevance of goodwill against two benchmarks: other accounting information and long-lived tangible assets. Prior research suggests that fair value estimates for goodwill must be inferred from other available information because of the nature of goodwill, including its intangibility. Such inferences are highly discretionary and may limit the usefulness of reported goodwill estimates. Because Statement of Financial Accounting Standards (SFAS) No. 142 relies exclusively on fair value estimates to subsequently measure goodwill, reported values considering management’s increased discretion may be less reliable and less value relevant when presented in conjunction with other accounting information. However, the subsequent accounting measurement for goodwill is not dissimilar from the subsequent measurement for long-lived tangible assets, which are also subject to impairment. In general, impairment measurement is subjective; management may have greater insight, even in the presence of management incentives and other accounting information, that may help confirm or disconfirm investors’ own goodwill estimates. Using other accounting information and long-lived tangible assets as benchmarks for the value relevance of goodwill, we find that reported goodwill provides greater value relevance relative to other accounting information after SFAS 142 and that the difference between the value relevance of goodwill and other long-lived tangible assets is also significantly greater following SFAS 142. |
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| Keywords: | Goodwill Value relevance SFAS 142 G10 G12 G14 M41 |
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