Assessing the Value Relevance of Goodwill Impairment Considering Country-Specific Factors: Evidence from EU Listed Companies

Abstract

The objective of this paper is to assess the value relevance of goodwill impairment losses with reference to the listed companies operating in the European Union area during the period from 2008 to 2011. We investigate whether the information of goodwill impairment is a relevant factor that influences the investment decisions of market operators, testing the statistical significance and the explanatory power of a multivariate regression model widely known in literature for estimating market stock prices of companies using balance sheet data, including goodwill impairment. To this end, we select two samples of companies: a first group of listed companies operating in United Kingdom from 2008 to 2011 that is similar to the one used in previous researches on the same topic; a second group of firms operating in France, Germany, Italy, Portugal, Spain and United Kingdom that reported a goodwill impairment loss for the same period, to extend the analyses also to other economic contexts. Each sample is split into further subsamples differentiated in terms of country of domicile, reference year, industry sector and level of relative importance of goodwill impairments. We propose some changes to the original model, including a new explanatory variable aimed at considering also country-specific differences. The analyses of subsamples show that goodwill impairment is significant only for two years (2008 and 2009) and for French listed companies across all periods. Therefore, further investigation should help in understanding these differences that could be related to country-specific factors such as cultural, environmental and regulatory aspects.

Bankruptcy Prediction Using Support Vector Machines and Feature Selection During the Recent Financial Crisis

“…The variables from 29 to 31 instead are country-specific factors, some of which have been determined following an approach that, to the extent of our knowledge, has not been used in previous studies for predicting bankruptcy. Similar research on this topic can be found in Laghi et al (2013) and Lam (2004).…”

Goodwill and accounting discretion

“…In fact, standard setters decided to move from amortisation to impairment because the latter is expected to provide more appropriate accounting information compared with the former. Nevertheless, findings do not provide a clear evidence: for example, a recent study concerning listed firms of several European countries (Laghi et al 2013) highlights that goodwill impairment is significant only for two years out of the four investigated, while according to other research (Morricone et al 2009) the reliability of the impairment test in context with weaker corporate governance (they investigated Italian listed firms) could lead to more opportunistic behaviour than those characterising the amortisation era.…”

Discussion of ‘IFRS non‐GAAP earnings disclosures and fair value measurement’

“…() examine the economic consequences of IFRS adoption for UK firms and find that mandatory IFRS adoption may benefit some firms but harm others. One can argue that IFRS fair value items are uninformative and misleading for investors; hence, adjustments are necessary to improve the informativeness; however, as the authors point out, studies provide evidence that fair value measurements (Barth and Clinch, ; Landsman et al ., ) and impairments (AbuGhazaleh et al ., ; Amel‐Zadeh et al ., ; Laghi et al ., ) have information content. If so, then the adjustments can be opportunistic.…”