Investor Underreaction to Goodwill Write-Offs
Current accounting rules end regular amortization of goodwill and mandate annual tests for goodwill impairment and loss recognition, when appropriate. These rules make consideration of goodwill write-offs important and timely. In the study reported here, we found that the effects of goodwill write-o...
| Veröffentlicht in: | Financial Analysts Journal. - The Financial Analysts Federation, 1960. - 59(2003), 6, Seite 75-84 |
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| Format: | Online-Aufsatz |
| Sprache: | English |
| Veröffentlicht: |
2003
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| Zugriff auf das übergeordnete Werk: | Financial Analysts Journal |
| Schlagworte: | Equity Investments: fundamental analysis and valuation models Financial Statement Analysis: financial accounting standards and proposals Investment Theory: behavioral finance Economics Business Mathematics Arts |
| Zusammenfassung: | Current accounting rules end regular amortization of goodwill and mandate annual tests for goodwill impairment and loss recognition, when appropriate. These rules make consideration of goodwill write-offs important and timely. In the study reported here, we found that the effects of goodwill write-off announcements were typically negative and material--on the order of -2.94 percent to -3.52 percent of the company's stock price. What makes goodwill write-off announcements especially noteworthy for investors is that additional effects of roughly -11.02 percent were realized by the end of a one-year post-announcement period. These results suggest that investors initially underreact to goodwill write-off announcements and that they need to be aware of the potential for further losses in the post-announcement period. |
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| ISSN: | 0015198X |