Timeliness of impairment recognition: Evidence from the initial adoption of SFAS 142

Chen, Changling; Kohlbeck, Mark J.; Warfield, Terry D.

doi:10.1016/j.adiac.2008.05.015

Cited by 57 publications

(48 citation statements)

References 10 publications

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“…Empirical studies support this argument and document that goodwill writedowns 1 lead investors to update their expectations (Bens, Heltzer, & Segal, 2011;Li, Shroff, Venkataraman, & Zhang, 2011) and are associated with reduced future cash flows (Aharony, Barniv, & Falk, 2010;Ahmed & Guler, 2007;Chen, Kohlbeck, & Warfield, 2008;Jarva, 2009;Lee, 2011). Opponents, however, doubt the informational value of goodwill impairments.…”

Section: Introductionmentioning

confidence: 69%

“…We build on IAS 36.130(a) and SFAS 142.47, which require firms to disclose the events and circumstances that led to the recognition of each material impairment loss. While prior studies show that goodwill impairment losses are informative and result in a negative market reaction (Bens et al, 2011;Chen et al, 2008;Li et al, 2011), we document that the reaction upon the announcement of unexpected goodwill impairments is associated with the explanation provided for the impairment.…”

Section: Introductionmentioning

confidence: 76%

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Market Reaction to Goodwill Impairments

Knauer

Wöhrmann²

2015

European Accounting Review

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This paper examines the information content of goodwill write-downs under InternationalAccounting Standard (IAS) 36 (Impairment of Assets) and Statement of Financial Accounting Standards (SFAS) No. 142. We investigate whether the informational value depends on the reliability of the news. Using a sample of 564 goodwill write-down announcements issued from 2005 to 2009, we find a negative capital market reaction to announcements of unexpected goodwill write-offs. Our results indicate that investors react more negatively when a country's level of legal protection is low and allows more management discretion. We further report that market reaction is associated with managers explaining the write-down decision and depends on the verifiability of these explanations. Investors react more negatively when an unverifiable internal explanation is given and less negatively when a verifiable external explanation is provided. We do not find significant differences between write-down announcements under SFAS 142 and IAS 36.

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Section: Introductionmentioning

confidence: 69%

Section: Introductionmentioning

confidence: 76%

Market Reaction to Goodwill Impairments

Knauer

Wöhrmann²

2015

European Accounting Review

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“…Chen et al (2008) provide evidence on the association between current market valuations and the cumulative effects of the adoption of SFAS 142 and evidence of the value relevance of the goodwill balance after the adoption of SFAS 142. Li et al (forthcoming) find that analysts revise their expectations downward based on goodwill impairment losses.…”

Section: Literature Reviewmentioning

confidence: 98%

The effect of SFAS 142 on the ability of goodwill to predict future cash flows

Lee

2011

Journal of Accounting and Public Policy

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“…It is possible to deduce that, in environments in which business combinations are carried out, intangible assets, among which goodwill features, are ever more important acquired economic resources and represent signifi cant portions in many of these transactions (Chen, Kohlbeck & Warfi eld, 2008;Detzen & Zülch, 2012).…”

Section: H2mentioning

confidence: 99%

Value Relevance vis-à-vis Disclosure on Business Combinations and Goodwill Recognized by Publicly Traded Brazilian Companies

Souza

Borba

2016

Rev. contab. finanç.

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The objective of this study is to examine the value relevance of the level of disclosure on business combinations and goodwill recognized by publicly traded Brazilian companies. The research sample is composed of publicly traded Brazilian companies that carried out any type of business combination, as the acquiring entity, between 2010 and 2013, yielding a total sample of 202 observations. To measure the disclosure level of each, a metric was created based on CPC-15 R1 (2011) to examine certain disclosure items in order to render a greater level of detail. Data collection was carried out using the footnotes to the annual consolidated standardized financial statements (DFPs) available from the São Paulo Stock Exchange (BM&FBOVESPA) website. The results revealed that disclosure levels for business combinations are positively and significantly associated with the stock price of the companies analyzed. As to the recognition of goodwill during business combinations, despite the fact that it represents a significant share of the value of the transactions, no statistical significance explaining stock price behavior was found. It also bears mentioning that the average level of disclosure identified in the explanatory notes in the sample was very low, indicating that companies need to improve when it comes to transparency of information.

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Timeliness of impairment recognition: Evidence from the initial adoption of SFAS 142

Cited by 57 publications

References 10 publications

Market Reaction to Goodwill Impairments

Market Reaction to Goodwill Impairments

The effect of SFAS 142 on the ability of goodwill to predict future cash flows

Value Relevance vis-à-vis Disclosure on Business Combinations and Goodwill Recognized by Publicly Traded Brazilian Companies

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