ABSTRACT: (GOODWILL IMPAIRMENT TEST IN EUROPE: PATTERNS IN A MULTI-YEAR PERSPECTIVE) The topic of goodwill impairment is particularly relevant today, both nationally and internationally, mainly due to the theoretical and practical implications that come with it. In line with that, the topic has gained momentum in academic research, as testified by the increasing number of studies that have been published on the issue in the last few years. These studies have mainly taken yearly impairment losses as their unit of analysis. Although this perspective has undoubtedly enhanced our understanding of the determinants and consequences of yearly impairment losses, it has not examined the overall behavior towards goodwill impairment that companies have adopted over time (i.e., the pattern in their goodwill impairment losses). This study intends to fill this gap by investigating the behavior towards goodwill impairment adopted by a sample of 109 European listed companies between 2005 and 2011, and by analyzing the determinants of this behavior. Companies are selected in three countries (Italy, Germany, and United Kingdom) characterized by different accounting systems and earnings management intensity, taking into account the stratification of each country population in terms of size (measured as total assets). The results of the study indicate that companies adopt different behavior towards goodwill impairment across different countries. In particular, German companies report impairment losses less frequently than Italian or UK companies; yet, when they do report losses, these are generally higher than those of Italian or UK companies. The findings also show that these differences are associated with the company’s operating profitability, as well as with its size and industry, but also with the country in which the company is headquartered. Contrary to our expectations, the patterns identified are not associated to the level of appreciation by the financial market as measured by market to book value. The study contributes to research on goodwill impairment by showing that companies adopt different behaviors towards goodwill impairment across Europe and by providing possible explanations for these different behaviors.
KEYWORDS: goodwill impairment, IAS 36, multi-year perspective
