Earnings management through goodwill impairment: empirical analysis of Finnish listed companies in 2005-2017

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dc.contributor Aalto University en
dc.contributor Aalto-yliopisto fi
dc.contributor.advisor Myllymäki, Emma-Riikka
dc.contributor.author Kaitila, Katri
dc.date.accessioned 2018-10-05T07:02:51Z
dc.date.available 2018-10-05T07:02:51Z
dc.date.issued 2018
dc.identifier.uri https://aaltodoc.aalto.fi/handle/123456789/34156
dc.description.abstract The IAS 36 standard has provided flexible guidelines for goodwill accounting under IFRS. As a result of the discretion provided in the annual goodwill impairment test, the goodwill impairment losses reported by companies are subject to management's subjective estimates. This enables management to adjust the impairments to the preferred magnitude, and postpone them if wished. In this study, an empirical analysis is carried out to examine the association of earnings management motives and goodwill impairment losses in Finnish listed companies between 2005 and 2017. Earnings management is examined by focusing on the patterns of big bath accounting, income smoothing, and covenant contract compliance. The study applies logistic regression to model the decision to report a goodwill impairment loss, and OLS regression to explore the magnitude of goodwill impairment losses. The results indicate that impairment losses are larger when earnings have experienced heavier declines, and that impairment losses are smaller for companies with higher levels of debt. The findings support the theories of big bath accounting and impairment avoidance under higher debt. Companies with high debt are assumed to reduce impairments to avoid violation of debt covenants. However, the evidence also indicates that there is no association of goodwill impairment decisions and earnings management patterns. In addition, income smoothing motives are not found to affect impairment size. The results suggest that some level of earnings management occurs in Finnish listed companies when determining the size of goodwill impairment losses, but not when deciding whether to impair goodwill. At the same time, some economic impairment factors, especially goodwill balance and book-to-market ratio, explain the impairment decision and size better than the earnings management motives. en
dc.format.extent 76 + 5
dc.language.iso en en
dc.title Earnings management through goodwill impairment: empirical analysis of Finnish listed companies in 2005-2017 en
dc.title Tuloksenohjaus liikearvon arvonalentumiskirjausten kautta: empiirinen tutkimus suomalaisista listayhtiöistä vuosina 2005-2017 fi
dc.type G2 Pro gradu, diplomityö fi
dc.contributor.school Kauppakorkeakoulu fi
dc.contributor.school School of Business en
dc.contributor.department Laskentatoimen laitos fi
dc.subject.keyword goodwill en
dc.subject.keyword impairment testing en
dc.subject.keyword earnings management en
dc.subject.keyword IAS 36 en
dc.subject.keyword big bath en
dc.subject.keyword income smoothing en
dc.identifier.urn URN:NBN:fi:aalto-201810055238
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 pörssiyhtiöt fi
dc.subject.helecon liikearvo fi
dc.subject.helecon tulos fi
dc.subject.helecon Suomi fi
dc.ethesisid 17298
dc.location P1 I fi
local.aalto.electroniconly yes
local.aalto.openaccess no

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