How is goodwill impairment driven by relative firm performance? Evidence from Germany

Abstract

Goodwill treatment has been facing considerable changes in terms of regulation. More recently, IAS 36 (2004) develops the subject of impairment of assets, stating that goodwill should be subject to impairment tests on an annual basis. In the IFRS context, the present research study aims at investigating how goodwill impairment is driven by relative firm performance in Europe, using Germany evidence. More precisely, the paper focuses on two distinct analyses: comparing differences between impairment and non-impairments firms (cross-sectional analysis) and impairment and non-impairment years (longitudinal analysis). Using both t-tests and Wilcoxon Rank Sum statistical tests, findings partially support the hypothesis that impairment firms are significantly less efficient when compared to nonimpairment firms in the period of goodwill impairment recognition. However, results of the longitudinal analysis do not support the hypothesis that Germany firms are relatively less efficient in the year of goodwill impairment comparing to the year of no impairment. These results are in line with similar studies applied to the United States and US GAAP. Finally, based on the longitudinal analysis’ findings, the earnings management topic is briefly discussed.

Date of Award	3 Jul 2014
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Christopher Hossfeld (Supervisor)