Overpaid acquisitions and goodwill impairment losses - Evidence from the US

The purpose of this study is to shed light on the reliability of accounting goodwill numbers by examining whether many goodwill impairment losses arise from overpayment for the target at the time of the acquisition, rather than from a subsequent deterioration of goodwill values. A second related objective is to assess whether the goodwill impairment test introduced by SFAS 142 improved the ability of accounting standards to timely capture situations in which the amount of goodwill is overstated and should thus be written down. For a sample of 929 US acquisitions first, I found that certain acquisition characteristics represent powerful indicators of subsequent goodwill impairments, suggesting that SFAS 141 is at least partially unable to avoid components other than "core goodwill" being included in goodwill. I also found that SFAS 142 annual impairment tests improved the timeliness of recognizing goodwill write-offs, eventually helping to mitigate the failure of SFAS 141. (C) 2013 Elsevier Ltd. All rights reserved.