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Investors’ Valuation of Goodwill and Goodwill Write-offs: Pre-SFAS 142 versus Post-SFAS 142
Anwer S. Ahmed,
Texas A & M University
Lale Guler, City University Of New York - Baruch College
ABSTRACT. We find that goodwill and goodwill write-offs are more strongly associated with stock prices and returns respectively after SFAS 142 than before SFAS 142. Furthermore, we find that the price-goodwill association is higher for firms that recognize goodwill impairments on a timely basis relative to firms that accelerate or delay the recognition of goodwill impairments in the post-SFAS 142 period. These results suggest that (i) SFAS 142 has improved the value-relevance of goodwill and goodwill write-offs, and (ii) investors see through the differences in reliability of reported goodwill numbers.
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