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Korean Academic Society of Business Administration
[ Article ]
korean management review - Vol. 51, No. 2, pp.483-517
ISSN: 1226-1874 (Print)
Print publication date 30 Apr 2022
Received 29 Aug 2021 Revised 09 Nov 2021 Accepted 05 Dec 2021
DOI: https://doi.org/10.17287/kmr.2022.51.2.483

영업권 손상인식과 주가의 미래이익정보성

Jong-Seo Choi ; Ji-Ahn Nam
(First Author) Pusan National University, School of Business jschoi@pusan.ac.kr
(Corresponding Author) Busan Development Institute namjiahn@bdi.re.kr
Goodwill Impairment Recognition and Pricing of Future Earnings


Copyright 2011 THE KOREAN ACADEMIC SOCIETY OF BUSINESS ADMINISTRATION
This is an open access article distributed under the terms of the Creative Commons Attribution License 4.0, which permits unrestricted, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

In this study, we investigate whether discretionary recognition of goodwill impairment affects the stock price informativeness of future earnings. Using firm-year observations with a positive beginning goodwill balance from 2011 to 2016, we test whether the decision to recognize impairment loss inconsistent with impairment indication (accelerated impairment) improves the future earnings response coefficient (FERC). We find that the accelerated impairers exhibit greater FERCs, lower value relevance of pre-impairment goodwill, and higher persistence of reported EPS. We suggest that early recognition of impairment from potentially overstated goodwill assists investors in better predicting future earnings by mitigating the measurement error inherent in goodwill book value and smoothing the earnings time series. Our findings fill the literature gap by shedding light on the positive role of accounting discretion exercised under the context of low level fair value applied to goodwill impairment test.

Keywords:

goodwill impairment test, accelerated recognition, fair value measurement, future earnings response coefficient

Acknowledgments

This research is supported by a 2-Year Research Grant of Pusan National University.

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∙ The author Jong-Seo Choi received his bachelor’s degree from Pusan National University as summa cum laude, master’s degree from Seoul National University, and doctorate from Pusan National University. He has served the deanship of the School of Business (Graduate School of Management) at Pusan National University. He was invited to Waseda University, Ritsumeikan University, Kyoto University, LaTrobe University, Monash University, Jiangxi University of Finance and Economics in China, and University of Science Malaysia as visiting professor and invited lecturer. He has served as editor of numerous peer-reviewed domestic and international journals and is currently serving as the editor-in-chief of Korean Accounting Review. His primary research interests are on managerial accounting discretion, economic consequence of accounting choice, fair value measurement and CSR among others.

∙ The author Ji-Ahn Nam is Ph.D in the college of business administration at Pusan National University. She graduated bachelor’s degree of Commerce in Accounting from Macquarie University in Australia, and received master’s degree and doctorate from Pusan National University. Her main research interests are on goodwill, pension accounting, accounting quality, value relevance.