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: Rev. ed.
Series: Working paper / Harvard Business School -- 09-106; Working paper (Harvard Business School) -- 09-106.
Publisher: Harvard Business School
Published: 2007
Place of publication: [Boston]
Language: eng
Number of pages: 52
Description: SFAS 142 requires managers to estimate the current fair value of goodwill to determine goodwill write-offs. 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). In promulgating SFAS 142, standard setters assume managers, on average, will use the discretion in goodwill impairment rules to convey private information on future cash flows; in contrast, agency theory predicts managers, on average, will use the discretion opportunistically. 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"--Publisher's website.

"First draft: January 15, 2007 ; this draft: March 21, 2010'--added t.p.

Previous ed. titled: Evidence from goodwill non-impairments on the effects of using unverifiable estimates in financial reporting.

Includes bibliographical references.