Goodwill Impairment: The Effects of Public Enforcement and Monitoring by Institutional Investors

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 per...

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Bibliographic Details
Published in:The Accounting review 2018-11, Vol.93 (6), p.149-180
Main Authors: Glaum, Martin, Landsman, Wayne R., Wyrwa, Sven
Format: Article
Language:English
Subjects:
Chief executive officers
Companies
Compensation
Decision making
Earnings
Economic performance
Effects
Enforcement
Goodwill
Impaired assets
Incentives
Institutional investments
International Financial Reporting Standards
Investors
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Summary: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 regime is relatively weak.
ISSN:0001-4826
1558-7967
DOI:10.2308/accr-52006