Do firms manage fair value estimates? An examination of SFAS 142 goodwill impairments

Henry Jarva*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

59 Citations (Scopus)

Abstract

I find that goodwill write-offs under Statement of Financial Accounting Standards No. 142 (SFAS 142) are associated with future expected cash flows as mandated by the standard. However, there are indications that goodwill write-offs lag behind the economic impairment of goodwill. Additional analysis reveals that the association between goodwill write-offs and future cash flows is insignificant for firms with contemporaneous restructuring. I hypothesize that this finding is due to agency-based motives. Finally, I examine a sample of non-impairment firms in which there are indications that goodwill is impaired. I fail to find convincing evidence that these firms are opportunistically avoiding impairments.

Original languageEnglish
Pages (from-to)1059-1086
Number of pages28
JournalJournal of Business Finance and Accounting
Volume36
Issue number9-10
DOIs
Publication statusPublished - 1 Nov 2009
MoE publication typeA1 Journal article-refereed

Keywords

  • Accounting conservatism
  • Fair value accounting
  • Write-offs

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