Analysis of the impact of goodwill impairment information on corporate value

Nami Shimada () and Toshimichi Homma ()
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Nami Shimada: University of Marketing and Distribution Sciences
Toshimichi Homma: Osaka University of Economics

No 3105400, Proceedings of International Academic Conferences from International Institute of Social and Economic Sciences

Abstract: Arguments about goodwill accounting arising from business combinations became increasingly active since FASB and IASB changed goodwill accounting from "amortization and impairment" to ?impairment-only". On the other hand, as a general rule, the Japan Generally Accepted Accounting Principles (JGAAP) applies amortization from a period of up to 20 years using the straight line method. This is a major cause of the financial results of the JGAAP differing from international accounting standards and this issue has been a topic of great interest in the business world.Although Accounting Standards Board of Japan (ASBJ) was considering goodwill accounting, they decided to continue to use the amortization method because many investigations and reviews began to point out problems of the approach. In 2014, ASBJ published a discussion paper with European Financial Reporting Advisory Group (EFRAG) and Organismo Italiano di Contabilità (OIC) and suggested a reintroduction of the amortization method.Problems with ?impairment-only? accounting include accounting methods and disclosure methods, but the usefulness of disclosed information is a particularly important issue. In this study, we investigate the usefulness of goodwill impairment information in regard to these problems. Specifically, its impact has been analyzed by using the method of event study based on the type of information and industry.News about goodwill impairment varies, and in some cases different information is reported in the same article. Therefore, we divided the information into three types. The first is the news where goodwill impairment information of goodwill was reported alone, the second where information reported in the same article is good news, and the third is bad news.Results of analysis of all samples confirmed that the negative impact of goodwill impairment news on stock price lasts at least 5 business days, namely one week. Concerning results of analysis based on the type of the information, the impact was the strongest and lasted the longest in the case of bad news. Finally, results of analysis divided into manufacturing and non-manufacturing confirmed the information impact in both industries, and the impact of manufacturing is stronger and lasts longer. These results showed that goodwill impairment information has a negative impact on corporate value in Japan.

Keywords: goodwill accounting; impairment; amortization (search for similar items in EconPapers)
JEL-codes: M00 M41 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2015-11
New Economics Papers: this item is included in nep-acc
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Published in Proceedings of the Proceedings of the 20th International Academic Conference, Madrid, Nov 2015, pages 465-483

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