Goodwill impairment as a reflection of investment opportunities |
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Authors: | Jayne M Godfrey Ping‐Sheng Koh |
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Institution: | 1. Department of Accounting and Finance, Monash University, Victoria, 3800, Australia;2. Department of Accounting, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong 3. Kong |
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Abstract: | We exploit a unique opportunity to examine whether goodwill impairment write‐offs reflect firms’ investment opportunities during the first years of the US goodwill impairment accounting regime. We find that impairment write‐offs are negatively associated with firms’ underlying investment opportunities. We also find associations between goodwill impairment write‐offs and traditionally applied leverage, firm size and return on assets variables, although the leverage and firm size results are less robust. The results support the International Accounting Standards Board and Financial Accounting Standards Board contention that an impairment test regime can reflect firms’ underlying economic attributes, while simultaneously indicating that managers use discretion to reduce contracting costs. |
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Keywords: | Goodwill Impairment test Investment opportunities M41 C21 D23 |
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