The information content of goodwill impairments and SFAS 142

Daniel A. Bens*, Wendy Heltzer, Benjamin Segal

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

89 Scopus citations


Accounting standard setters face a perpetual challenge in balancing relevance and reliability when establishing generally accepted accounting principles. This tension is especially heightened when the nature of the economic information concerns intangible assets. This article presents exploratory evidence about standard setters' response to this challenge by examining whether Statement of Financial Accounting Standards No. 142 (SFAS 142): Goodwill and Other Intangible Assets altered the information content of goodwill write-offs. To more accurately capture the information of goodwill write-offs, the authors first create a model to estimate expected impairments. The difference between actual write-offs and expected write-offs represents write-off surprises or unexpected goodwill write-offs. The authors document a negative and significant stock market reaction to unexpected goodwill write-offs. On a cross-sectional basis, they find that the market reaction is attenuated for firms with low information asymmetry (their proxy is a high analyst following) and for firms that find it relatively costly to implement impairment tests (their proxy is the inverse of firm size). The authors find no variation in market reaction based on firm complexity (their proxy is the number of firm segments). The negative reaction for the high information asymmetry and larger firms weakens following the adoption of SFAS 142. The latter result is consistent with SFAS 142 critics' claims that more relevant accounting information, captured by fair value methods, is difficult to implement reliably and thus can reduce the information content of accounting reports.

Original languageAmerican English
Pages (from-to)527-555
Number of pages29
JournalJournal of Accounting, Auditing and Finance
Issue number3
StatePublished - Jul 2011
Externally publishedYes


  • Fair value accounting
  • Goodwill
  • Impairments
  • SFAS 142
  • Write-offs


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