Evidence on the use of unverifiable estimates in required goodwill impairment
By: Karthik Ramanna and Ross L. Watts
Contributors: Watts, Ross L., 1942-; Harvard Business School
Edition: 2nd rev.
Series: Working paper / Harvard Business School -- 09-106; Working paper (Harvard Business School) -- 09-106.
Publisher: Harvard Business School
Published: 2009
Place of publication: [Boston]
Language: eng
Number of pages: 48
Description: SFAS 142 requires managers to estimate the current fair value of goodwill to determine goodwill write-offs. In promulgating the standard, the FASB predicted managers will, on average, use the fair value estimates to convey private information on future cash flows. The current fair value of goodwill is unverifiable because it depends in part on management's future actions (including managers' conceptualization and implementation of firm strategy). Thus, agency theory predicts managers will, on average, use the discretion in SFAS 142 consistent with private incentives. We test these hypotheses in a sample of firms with market indications of goodwill impairment. Our evidence, while consistent with some agency-theory derived predictions, does not confirm the private information hypothesis.
Notes: "March 2009, revised March 2010, August 2010, March 2011"--Publisher's website.

"First draft: January 15, 2007 ; this draft: January 31, 2011'--added t.p.

Original title: Evidence from goodwill non-impairments on the effects of using unverifiable estimates in financial reporting.

Includes bibliographical references.