Do Economic Performance Indicators Support Firms’ Claiming a Goodwill Impairment Loss During a Prosperous Year?

Abstract

Results from the academic literature stream support both the informative and uninformative aspects of goodwill accounting. However, gaps exist in the literature stream pertaining to the timing and managerial motivation for claiming goodwill impairment losses. Our study fills a gap in the literature by examining firms’ goodwill impairment loss write-offs during the year of 2006, a period of economic prosperity. We examine the association of firms’ goodwill impairment losses with both economic performance and accounting indicator variables. Our findings do not support the informative role of goodwill accounting. Further, goodwill impairment losses provide a marginal increase in the explanatory power of operating earnings as a predictor of the following period’s operating cash flows.