This study investigates information content of goodwill impairment loss reported under current GAAP (Generally Accepted Accounting Principles). It explains the market’s negative reaction to goodwill impairment losses. The sequential specification approach is used to analyze the factors affecting the level of normalized stock returns. Cumulative effect and change in debt to total assets were found to be important variables in determining the level of normalized stock returns. The finding suggests that while goodwill write-off may not affect cash flows or tangible assets, it provides information about future change in the earnings potential and increased degree of risk to solvency of the firm.
Goodwill, Impairment loss, SFAS 141, SFAS 142, Business combinations, Goodwill write-off
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Duangploy, O., Omer, K., Manrique, J., & Shelton, M. (2008). Is good will impairment loss meaningful information?. Business Review, 3(1), 7-22. Retrieved from https://ir.iba.edu.pk/businessreview/vol3/iss1/3
February 23, 2021