Goodwill or “No-will”: Hubris in the tone at the top |
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| Institution: | 1. Department of Business Administration, Sejong University, Seoul, South Korea;2. School of Business Administration, Chung-Ang University, Seoul, South Korea;3. College of Business Administration, Seoul National University, Seoul, South Korea;1. Stroke and Dementia Research Centre, St George''s University of London, UK;2. House of Lords, London, UK;1. Belt and Road School, Beijing Normal University, Zhuhai 519087, China;2. Deakin Business School, Deakin University, Australia;3. Department of Accounting and Finance, School of Business, Macau University of Science and Technology, Macau;1. Graduate School of Science in Taxation, University of Seoul, 163 Seoulsiripdaero, Dongdaemun-gu, Seoul 02504, Republic of Korea;2. School of Business Administration, Chonnam National University, 77, Yongbong-ro, Buk-gu, Gwangju 61186, Republic of Korea;1. College of Business, Hankuk University of Foreign Studies, South Korea;2. Department of Management, Korea National Open University, South Korea;3. Department of Business Administration, Sejong University, South Korea;4. Department of Business Administration, Inha University, South Korea;1. Department of Accounting and Corporate Governance, Macquarie University, North Ryde, NSW 2109, Australia;2. Faculty of Business Administration, Memorial University of Newfoundland, St. John’s, NL A1B 3X5, Canada;3. John Molson School of Business, Concordia University, 1455 Boulevard de Maisonneuve O Montréal, QC H3G 1M8, Canada |
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| Abstract: | In this study, we examine the effect of hubris in the “tone at the top” on goodwill accounting, specifically the proportion of the purchase price allocated to goodwill following a business combination, and subsequent decisions to write down goodwill. Using a sample of CEO letters to shareholders from firms listed on the Stockholm Stock Exchange, we carry out textual analysis of CEO letters to identify hubristic language markers. Regression analyses show that hubristic tone is positively and significantly associated with the purchase price allocation to goodwill. Furthermore, we predict that hubristic managers are more likely to overestimate future cash inflows related to goodwill and are less likely to perceive the need for a potential write-down. Consistent with this prediction, we find that hubristic tone in the CEO letters is associated with less timely goodwill write-downs. This study contributes to the literature on goodwill accounting, the role of CEO attributes on corporate decision making, and to research on CEO-speak, by providing evidence that a hubristic tone at the top can explain strategic choices by management and accounting outcomes. |
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| Keywords: | Hubristic tone Goodwill impairment Purchase price allocation CEO letter Textual analysis M41 D91 M12 M14 |
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