This study examines factors that influence managers’ choice to recognize
goodwill impairment under Statement of Financial Accounting Standards No. 142
(SFAS 142). The debate surrounding SFAS 142’s effectiveness centered on whether the
managerial discretion allowed by the standard could lead to biased decisions in
managers’ determination of goodwill impairment.
I use a conditional logistic regression to compare 130 firms that did recognize the
existing impairment losses (write-off firms) to a control sample of 130 matching firms
that did not recognize the existing impairment losses (no write-off firms). I find that the
likelihood of recognizing the existing impairment losses significantly decreases when
the managers have sizable holdings of in-the-money stock options. On the other hand,
the likelihood of recognizing the existing impairment losses significantly increases when
firms have stronger corporate governance, as measured by percentage of outside
directors, percentage of outside directors’ ownership, number of busy directors, and
separation of CEO and Chair titles. Additionally, I find that during the period leading up to the SFAS 142 write-off,
there have been more favorable changes in corporate governance structures of the writeoff
firms, compared to that of no write-off firms. These favorable changes in governance
structures occurred to a greater extent in firms that have delayed the recognition of
existing impairment losses to the sample period compared to the firms that have been
recognizing the write-offs on a timely basis. These results are consistent with the notion
that favorable changes in corporate governance induce firms to take SFAS 142
impairment losses, which managers have avoided taking in the prior period.
Overall, the results imply that managerial incentives do affect the implementation
of standards that expand managerial discretion and highlight the importance of corporate
boards in the monitoring of discretion allowed by such standards.
| Identifer | oai:union.ndltd.org:tamu.edu/oai:repository.tamu.edu:1969.1/ETD-TAMU-1216 |
| Date | 15 May 2009 |
| Creators | Guler, Lale |
| Contributors | Ahmed, Anwer |
| Source Sets | Texas A and M University |
| Language | en_US |
| Detected Language | English |
| Type | Book, Thesis, Electronic Dissertation, text |
| Format | electronic, application/pdf, born digital |
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