Authors: Laurent Lazar
Addresses: Institute of Finance and Accounting, Leuphana University Lüneburg, Universitätsallee 1, 21335 Lüneburg, Germany
Abstract: This study investigates the reported goodwill of German listed companies between 2009 and 2014 and focuses on opportunistic behaviour by managers applying the impairment only approach (IOA) in accordance with IAS 36. Contributing to the literature on goodwill accounting, this investigation examines changes of CEOs and companies' financial situation, showing that the profit trend is an indicator of goodwill impairments. The results also indicate that new CEOs show a tendency for big bath accounting when taking office and therefore write off more goodwill than incumbent CEOs. Moreover, managers are more likely to impair goodwill when current earnings are negative, especially after decreases in earnings above the annual average. On the other hand, managers tend to avoid goodwill impairments when earnings decrease significantly but still remain positive.
Keywords: impairment only approach; IOA; goodwill; big bath accounting; income smoothing; earnings management; IAS 36.
International Journal of Accounting, Auditing and Performance Evaluation, 2019 Vol.15 No.2, pp.168 - 190
Accepted: 28 Sep 2018
Published online: 03 Apr 2019 *