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Indicators of goodwill impairments: Pre- and post-acquisition indicators ability to predict future impairments
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Business Studies.
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Business Studies.
2014 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

Companies allocate the majority of the acquisition price to goodwill, which has resulted in

goodwill to become a prominent asset on companies balance sheets. Research shows that

goodwill impairments lag behind the economic reality between two to four years and that the

current accounting regime does not provide adequate disclosures to predict future impairments.

The purpose of this paper is to examine what factors that can predict the occurrence of future

goodwill impairments. We carry out our investigation by choosing several pre-acquisition and

post-performance indicators, which we hand-collect from companies’ annual reports. Our sample

includes acquisitions made by Swedish listed companies during the period 2005 to 2011. To

examine the predictability of goodwill impairments we carry out a series of binary logistic

regressions in which goodwill write-offs are predicted by our acquisition and performance

indicators. Our results suggest that information on acquisition activity, change in segment-level

return on assets and firm-level return on assets are useful to predict goodwill impairments.

Although our findings indicate that information surrounding the acquisition and subsequent

performance can be helpful in predicting future impairments there is still difficulties for external

stakeholders to predict goodwill write-offs. This is due the fact that a majority of acquisitions

lack adequate information on the acquired goodwill. Consequently, our findings have

implications for the accounting literature and standard setters since it is questionable whether

financial statements and their disclosures provide sufficient and relevant information to evaluate

the economic reality of goodwill balances.

Place, publisher, year, edition, pages
2014. , 36 p.
Keyword [en]
Goodwill, Impairments, Acquisitions, Prediction Model, IFRS 3, Segment Performance
National Category
Business Administration
URN: urn:nbn:se:uu:diva-230212OAI: diva2:739253
Educational program
Master Programme in Accounting, Auditing and Analysis
Available from: 2014-08-21 Created: 2014-08-20 Last updated: 2014-08-21Bibliographically approved

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