Cash flow prediction ability of goodwill impairments and related controls

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dc.contributor Aalto University en
dc.contributor Aalto-yliopisto fi
dc.contributor.advisor Niemi, Lasse Vierros, Jori 2018-06-27T09:53:59Z 2018-06-27T09:53:59Z 2018
dc.description.abstract This research studies the information value of goodwill by examining the association between reported goodwill impairments and next period cash flows. Because current SFAS 142 standard requires managers to conduct goodwill impairments based on their own fair value estimates, the reported goodwill impairments can be assumed to reveal some inside information that is useful for cash flow prediction. On the other hand, multiple researchers (e.g. Ramanna and Watts, 2012) have found evidence that managers are using discretion allowed in goodwill standards for opportunistic motives, which decreases the information value of reported goodwill impairments. The used sample extends from 2001 to 2015 and contains US companies obtained from Compustat. The research uses a traditional cash flow prediction model by Barth et al. (2001), by extending it to include a separate individual variable for goodwill impairments similarly as Jarva (2009) and Bostwick et al. (2016). This research focuses to provide more evidence of how strong association between future cash flows and goodwill impairments the used model is able to detect, and to use the model to test how control variables are associated with the information value of goodwill. The results show that the inclusion of a separate variable for goodwill impairments significantly improves the cash flow prediction ability of the model. The improvement is however only marginal and considerably smaller compared to results in Bostwick et al., which results are found to be improved due the use of outlier restrictions. A weak evidence is found to support that the tested controls are associated with the cash flow prediction ability of goodwill impairments. The control tests are however affected by the weak association between next period cash flows and goodwill impairments, and none of the tested control variables is found to have strongly significant effect on the results. Furthermore, inconsistencies in the reported coefficients for goodwill impairments variable in previous studies are found to be related to the definition of one regression variable in Bostwick et al. research, and it can be corrected by changing a sign of one term in a formula defining that regression variable. en
dc.format.extent 86 + 16
dc.language.iso en en
dc.title Cash flow prediction ability of goodwill impairments and related controls en
dc.title Liikearvon arvorelevanssi kassavirtaennusteissa sekä kontrollimuuttujien vaikutus tuloksiin fi
dc.type G2 Pro gradu, diplomityö fi Kauppakorkeakoulu fi School of Business en
dc.contributor.department Laskentatoimen laitos fi
dc.subject.keyword goodwill impairments en
dc.subject.keyword cash flow prediction en
dc.subject.keyword SFAS 142 en
dc.subject.keyword fair value accounting en
dc.identifier.urn URN:NBN:fi:aalto-201806273672
dc.type.ontasot Master's thesis en
dc.type.ontasot Maisterin opinnäyte fi
dc.programme Accounting en
dc.subject.helecon laskentatoimi fi
dc.subject.helecon liikearvo fi
dc.subject.helecon kassavirta fi
dc.subject.helecon ennustet fi
dc.ethesisid 17190
dc.location P1 I fi

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