An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Linda J Zucca
Kent State University

Ran Barniv
Kent State University

Abstract: In this study we examine a major implementation of accounting policy in SFAS 142. We focus on what determines the likelihood of goodwill impairment and the value relevance of impairment losses. We present evidence that certain characteristics of firms reporting impairment differ significantly from those of the firms which do not report impairment. The likelihood of impairment increases significantly for larger firms and decreases for firms with relatively higher levels of prior goodwill amortization, operating income margins and recent acquisition activity. Based on previous literature on goodwill prior to SFAS 142 and a handful of current studies on the timeliness and informativeness of goodwill impairment, we expect impairment losses to have a negative impact on prices, returns, and market-to-book values. Our empirical results strongly support this expectation.

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