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Lale Guler - One of the best experts on this subject based on the ideXlab platform.

  • Has SFAS 142 Improved the Usefulness of Goodwill Impairment Loss and Goodwill Balances for Investors
    Review of Managerial Science, 2016
    Co-Authors: Lale Guler
    Abstract:

    Due to the concerns about the annual SFAS 142 impairment test, the FASB has recently added a project to its technical agenda to evaluate potential alternatives for measurement of Goodwill. Motivated by the FASB’s consideration of a change in Goodwill accounting, I examine the impact of SFAS 142 on the usefulness of Goodwill write-offs and Goodwill balances. I find that Goodwill write-offs and Goodwill balances are more strongly associated with stock returns and stock prices respectively after SFAS 142 than before SFAS 142. Furthermore, in the post-SFAS 142 period, I find that the association between stock prices and Goodwill is lower for firms that avoid the recognition of the existing Goodwill impairments, and that Goodwill write-offs are more negatively associated with stock returns for firms where managers have more discretion over the impairment testing process. Overall, the findings suggest that despite the concerns of critics over the reliability of fair value estimates of Goodwill, (1) SFAS 142 has improved the usefulness of Goodwill numbers from investor perspective, and (2) investors see through the differences in reliability of reported Goodwill numbers. These results have implications for standard-setting as the FASB considers new alternatives for Goodwill accounting.

  • Has SFAS 142 Improved the Usefulness of Goodwill Write-offs and Goodwill Balances for Investors?
    SSRN Electronic Journal, 2014
    Co-Authors: Lale Guler
    Abstract:

    In November 2013, due to concerns about the annual SFAS 142 impairment test, the FASB added a project to its technical agenda to evaluate potential alternatives for measurement of Goodwill for public business entities. Elimination of the annual SFAS 142 impairment test is among the alternatives being considered by the FASB. Prior research provides mixed results regarding the effects of SFAS 142. Motivated by the consideration of new alternatives by the FASB and inconclusive findings of prior research, I examine the impact of SFAS 142 on the usefulness of Goodwill write-offs and Goodwill balances. I find that Goodwill write-offs and Goodwill balances are more strongly associated with stock returns and stock prices respectively after SFAS 142 than before SFAS 142. Furthermore, in the post-SFAS 142 period, I find that the association between stock prices and Goodwill is lower for firms that avoid the recognition of the existing Goodwill impairments, and that Goodwill write-offs are more negatively associated with stock returns for firms where managers have more discretion over the impairment testing process. Overall, the findings suggest that despite the concerns of critics over the reliability of fair value estimates of Goodwill, (i) SFAS 142 has improved the usefulness of Goodwill numbers from investor perspective, and (ii) investors see through the differences in reliability of reported Goodwill numbers. These results have implications for standard-setting as the FASB considers new alternatives for Goodwill accounting.

  • evidence on the effects of sfas 142 on the reliability of Goodwill write offs
    2007
    Co-Authors: Anwer S Ahmed, Lale Guler
    Abstract:

    We provide evidence on the impact of SFAS No. 142 on the reliability of Goodwill write-offs and Goodwill balances by examining the association of Goodwill write-offs with stock returns and the association of Goodwill balances with stock prices in a period after SFAS No. 142 relative to a period before SFAS No. 142. We find that (i) Goodwill write-offs (or impairments) and Goodwill balances are more strongly associated with stock returns and stock prices respectively in the post SFAS 142 period relative to the pre-SFAS 142 period and (ii) in the post SFAS No. 142 period, Goodwill write-offs and Goodwill balances are more strongly associated with stock returns and stock prices respectively for firms with a high number of segments relative to firms with few segments. Our tests suggest that contrary to the relatively widespread concerns of critics about the reliability of Goodwill impairments under SFAS 142, the standard has had a favorable impact on the reliability of Goodwill write-offs and Goodwill balances.

Martin Glaum - One of the best experts on this subject based on the ideXlab platform.

  • Goodwill impairment the effects of public enforcement and monitoring by institutional investors
    The Accounting Review, 2018
    Co-Authors: Martin Glaum, Wayne R Landsman, Sven Wyrwa
    Abstract:

    ABSTRACT This study investigates the determinants of Goodwill impairment decisions by firms applying IFRS based on a comprehensive sample of stock-listed firms from 21 countries. Multivariate logistical regression findings indicate that Goodwill impairment incidence is negatively associated with economic performance, but also related to proxies for managerial and firm-level incentives. In addition, whereas Goodwill impairment tends to be timely for firms in high enforcement countries, firms in low enforcement countries tend to be less responsive to declines in the economic value of Goodwill; CEO compensation concerns affect the impairment decision for firms in low enforcement; and CEO reputation concerns and management preference for smooth earnings influence Goodwill impairment decisions in high, as well as low, enforcement countries. We also find that private monitoring through institutional investors substitutes for public enforcement in the context of Goodwill impairment when a country's enforcement r...

  • determinants of Goodwill impairment international evidence
    2015
    Co-Authors: Martin Glaum, Wayne R Landsman, Sven Wyrwa
    Abstract:

    This study investigates the determinants of firms’ decision to impair Goodwill under IFRS. Our empirical analysis is based on data for the years 2005 to 2011 for 8,110 non-financial firm-years and 1,358 financial firm-years from 21 countries where firms apply IFRS. We specifically investigate which role national enforcement systems play for firms’ decisions whether or not to impair Goodwill. We find that firms’ decisions are related to measures of performance, but also to proxies for managerial and firm-level incentives. We also find that Goodwill impairment is associated with lagged stock-market return, suggesting that firms tend to delay necessary impairment. Further investigations reveal that the timeliness of Goodwill impairment depends on the strength of national accounting and auditing enforcement systems: in countries with weak enforcement systems firms tend to delay necessary Goodwill impairments, while firms in countries with strong enforcement systems tend to write off Goodwill in a timely fashion, both before and after the Financial Crisis. However, even in countries with strict enforcement impairment decisions appear to be influenced by managerial and firm-level incentives, such as CEO reputation concerns and by management’s preferences for smooth earnings.

  • Goodwill accounting a review of the literature
    2014
    Co-Authors: Sascha Boennen, Martin Glaum
    Abstract:

    In this paper we provide a review of the empirical literature on the accounting for Goodwill. We focus on research undertaken since the introduction of the "impairment-only approach" of SFAS 141/142 and IFRS 3/IAS 36 (rev. 2004). We distinguish three areas of work. The first area comprises studies on purchase price allocations and the determination of Goodwill. The second comprises studies that analyze whether Goodwill should be interpreted as an asset, especially value relevance studies and studies on the predictive value of Goodwill. The third area of research is the subsequent measurement of Goodwill. Here, we discuss, inter alia, studies on the determinants and on the timeliness of Goodwill impairments. Finally, we summarize findings on the influence of earnings management on Goodwill accounting. Despite the multitude of studies, the available evidence does not allow for an unambiguous answer to the question whether the decision-usefulness of Goodwill information has improved or deteriorated following the introduction of the impairment-only approach. One reason for this is that direct comparisons of the situations before and after the introduction are problematic because in the early period companies under US GAAP could apply the pooling-of-interests method, and in many European countries companies could set off Goodwill to reserves. The paper closes with look at avenues for future research on Goodwill accounting.

John G Watson - One of the best experts on this subject based on the ideXlab platform.

Patricia J Hughes - One of the best experts on this subject based on the ideXlab platform.

  • leading indicators of Goodwill impairment
    Journal of Accounting Auditing & Finance, 2006
    Co-Authors: Carla Hayn, Patricia J Hughes
    Abstract:

    This paper examines whether currently available financial disclosures on acquired entities allow investors to effectively predict Goodwill impairment, a task that has become more important following the recent abolishment of Goodwill amortization. We track the performance of acquired companies through time from the year of the acquisition, using performance measures of the operating segment to which the acquired company's assets are allocated as well as characteristics of the acquisition. We find that available disclosures do not provide financial statement users with information to adequately predict future write-offs of Goodwill. Further, the characteristics of the original acquisitions are more powerful predictors of eventual Goodwill write-offs than those based on segment disclosures of the acquired entities' performance. On average, Goodwill write-offs lag behind the economic impairment of Goodwill by an average of three to four years. For a third of the companies examined, the delay can extend up to ten years.

Natalie Tatiana Churyk - One of the best experts on this subject based on the ideXlab platform.

  • reporting Goodwill are the new accounting standards consistent with market valuations
    Journal of Business Research, 2005
    Co-Authors: Natalie Tatiana Churyk
    Abstract:

    Abstract In 2001, the Financial Accounting Standards Board (FASB) issued a standard that eliminated the amortization of Goodwill and instead requires that it be tested annually for impairment. This study examines the appropriateness of the elimination of systematic Goodwill amortization by testing market valuations of Goodwill. While only weak support for the initial impairment of Goodwill is found, strong evidence of subsequent impairment is found. These results support the elimination of Goodwill amortization by accounting regulators.

  • Goodwill and Amortization: Are They Value Relevant?
    Academy of Accounting and Financial Studies Journal, 2003
    Co-Authors: Natalie Tatiana Churyk, Eugene G. Chewning
    Abstract:

    ABSTRACT The Financial Accounting Standards Board (FASB) proposed different methods for the treatment of Goodwill after acquisition. Just recently, the FASB issued a new accounting standard requiring no amortization but periodic assessment of Goodwill for impairment. This treatment implies that Goodwill has an indefinite economic life. An earlier proposal suggested amortization of Goodwill over a maximum of 20 years. This treatment implies that the contribution of Goodwill to the generation of revenue is finite. This study examines whether the equity markets value Goodwill as an economic resource and, if so, whether or not amortization of Goodwill is related to the market value of the firm. Such research is vital to the evaluation of the treatment of Goodwill in domestic and international accounting standards. An analysis of five consecutive years of financial statement data for 96 firms (480 firm-year observations) indicates that Goodwill is positively associated with firm value. Furthermore, Goodwill amortization has a significant negative relation with equity values in some individual years and in an analysis with the data pooled across years. Together, these results imply that the market views Goodwill as an economic resource that declines in value, and the decline in value is related to the amortization methods used by firms in the sample. (ProQuest: ... denotes formulae omitted.) INTRODUCTION Economic Goodwill reflects the ability of a company to earn an excess return on investment. Economic Goodwill may be attributed to the company's reputation, superior technology, superior management, or other favorable characteristics that enable the company to earn excess returns. In some cases, these favorable characteristics may be maintained for long periods, but in other cases, they diminish rapidly Accounting standards in the United States specify that a company recognizes Goodwill only when the Goodwill is acquired through a purchase transaction, e.g., Goodwill appears on the consolidated financial statements as a result of a merger of two business entities. Accounting standards define Goodwill as the difference between the purchase price and the fair value of the net assets of the acquired company. This accounting treatment implies that Goodwill is initially valuable for the purchasing firm: Goodwill generates a future stream of earnings and cash flow. The way in which amounts are assigned to Goodwill raises the possibility that the Goodwill recognized in a purchase may not always represent superior future earnings potential, i.e., economic Goodwill. Differences between the purchase price and the fair value of net identifiable assets may result from an excessive price paid for an acquisition or from including in the purchase price the investment banking and legal fees, financing costs, or other costs not related to the future earnings potential of an acquisition. A recent change in U.S. accounting standards, Financial Accounting Standards Board (FASB) Statement No. 142, Goodwill and Other Intangible Assets (FASB, 2001, hereafter referred to as Statement 142), prohibits systematic amortization of Goodwill. As suggested by Statement 142, if Goodwill produces positive cash flows indefinitely, and there is no apparent decline in value, then greater representational faithfulness might be achieved if Goodwill is capitalized and periodically reviewed for impairment rather than systematically amortized. However, if Goodwill declines in value without an adjustment through either amortization or a write-down, if impaired, assets and income are overstated, and the financial statements are not representati onally faithful. Under the prior accounting standard, firms amortized Goodwill over a period not exceeding 40 years. Similarly, current international accounting standards require amortization over a period not exceeding 20 years. If Goodwill does not produce cash flows in perpetuity and a decline in value is apparent, then better representational faithfulness may result from a policy of capitalization and subsequent amortization. …

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