Goodwill write-downs, SFAS No. 121 and the adoption of SFAS No. 142.

摘要

This study examines goodwill write-downs under SFAS No. 121 and the effects of SFAS No. 142. It contrasts goodwill write-down announcements made before and after this new rule's provisions came into effect. Similar to SFAS No. 121 for impairments in general, SFAS No. 142 was intended to reduce managerial discretion and to enhance financial reporting for goodwill impairment in specific. Two sources of motivation for write-downs are economic impairment and reporting incentives. I find significant evidence of reporting incentives playing a role both under SFAS No. 121 and under SFAS No. 142. In spite of the provisions of SFAS No. 142, my results show only partial systematic differences in the reporting incentive variables for goodwill write-downs taken before and after SFAS No. 142. I find no such differences for the economic motivation variables. Results of markets tests show a negative market reaction to such write-downs under both rules, and evidence of delayed recognition. However, additional tests show no systematic differences in the market reaction between write-downs taken before and after SFAS No. 142. There is little evidence that SFAS No. 142 has resulted in an enhancement of the reporting for goodwill impairment. Overall, although goodwill write-downs under the new rule entail a significant negative market reaction (consistent with economic impairment), their characteristics have not significantly changed, and goodwill write-downs continue to be significantly associated with reporting incentives.