Management discretion and the role of the stock market in goodwill impairment decisions - evidence from Finland

Jani Saastamoinen and Kati Pajunen

International Journal of Managerial and Financial Accounting, 2016, vol. 8, issue 2, 172-195

Abstract: IAS 36 provides latitude to management in the impairment testing of goodwill assets, which may intensify agency conflict. In this study, we carry out an empirical analysis on goodwill impairment losses recognised by Finnish listed companies between 2005 and 2009. We document evidence that a change of CEO is associated with a goodwill write-off. Further, our results indicate that the size of a goodwill impairment loss is larger when the company's reported earnings would have been negative in the absence of the impairment charge, which points towards behaviour associated with earnings bath. However, we also report evidence that the monitoring function of the stock market may reduce asymmetric information concerning the carrying value of goodwill. These results suggest that regulators could benefit from focusing on monitoring compliance with the current goodwill accounting standards in firms which exhibit high levels of information asymmetry between investors and management.

Keywords: earnings bath; goodwill impairment testing; IAS 36; In­ter­na­tional Ac­count­ing Stand­ards; managerial discretion; market monitoring; management discretion; stock markets; Finland; goodwill assets; agency conflict; asymmetric information; compliance monitoring. (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.inderscience.com/link.php?id=77956 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ids:injmfa:v:8:y:2016:i:2:p:172-195

Access Statistics for this article

More articles in International Journal of Managerial and Financial Accounting from Inderscience Enterprises Ltd
Bibliographic data for series maintained by Sarah Parker ().