Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE credits
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.
2014. , 36 p.
Goodwill, Impairments, Acquisitions, Prediction Model, IFRS 3, Segment Performance