TY - JOUR
T1 - Country-specific drivers of the value relevance of goodwill impairment losses
AU - Alshehabi, Ahmad
AU - Georgiou, George
AU - Ala, Alessandro S.
N1 - Publisher Copyright:
© 2021 Elsevier Inc.
PY - 2021/6
Y1 - 2021/6
N2 - This study is the first to analyze the value relevance of goodwill impairment losses (GIL) in an international context; therefore, it builds a link between institutional, cultural, and religious factors and cross-country variations in the relevance of GIL. Using a sample of 18,143 firm-year observations drawn from 21 countries during the period 2005–2018, we find that firms, on average, reported GIL that are value relevant to their investors. However, consistent with the litigation perspective, the value relevance of GIL is found to be substantially higher for firms domiciled in countries with high-level institutional quality (IQ) than for firms in countries where IQ is relatively low. Our findings remain robust after controlling for macroeconomic effects or excluding observations from the biggest countries, which constitute a substantial proportion of the data set we analyzed. Additional tests show that institutional effects, although absorbing religion, did not supersede or restrain cultural effects, suggesting that social norms also influence the relevance of impairment information. Our evidence introduces a new explanation for heterogeneity in value relevance of goodwill impairments, and adds to research on the effects of legal and social norms on value relevance.
AB - This study is the first to analyze the value relevance of goodwill impairment losses (GIL) in an international context; therefore, it builds a link between institutional, cultural, and religious factors and cross-country variations in the relevance of GIL. Using a sample of 18,143 firm-year observations drawn from 21 countries during the period 2005–2018, we find that firms, on average, reported GIL that are value relevant to their investors. However, consistent with the litigation perspective, the value relevance of GIL is found to be substantially higher for firms domiciled in countries with high-level institutional quality (IQ) than for firms in countries where IQ is relatively low. Our findings remain robust after controlling for macroeconomic effects or excluding observations from the biggest countries, which constitute a substantial proportion of the data set we analyzed. Additional tests show that institutional effects, although absorbing religion, did not supersede or restrain cultural effects, suggesting that social norms also influence the relevance of impairment information. Our evidence introduces a new explanation for heterogeneity in value relevance of goodwill impairments, and adds to research on the effects of legal and social norms on value relevance.
KW - Culture
KW - Goodwill impairments
KW - Institutions
KW - Religion
KW - Value relevance
UR - http://www.scopus.com/inward/record.url?scp=85103725958&partnerID=8YFLogxK
U2 - 10.1016/j.intaccaudtax.2021.100384
DO - 10.1016/j.intaccaudtax.2021.100384
M3 - Article
AN - SCOPUS:85103725958
SN - 1061-9518
VL - 43
JO - Journal of International Accounting, Auditing and Taxation
JF - Journal of International Accounting, Auditing and Taxation
M1 - 100384
ER -