Review of Managerial Science

, Volume 12, Issue 3, pp 559–592 | Cite as

Has SFAS 142 improved the usefulness of goodwill impairment loss and goodwill balances for investors?

  • Lale Guler
Original Paper


Due to the concerns about the annual SFAS 142 impairment test, the FASB has recently added a project to its technical agenda to evaluate potential alternatives for measurement of goodwill. Motivated by the FASB’s consideration of a change in goodwill accounting, I examine the impact of SFAS 142 on the usefulness of goodwill write-offs and goodwill balances. I find that goodwill write-offs and goodwill balances are more strongly associated with stock returns and stock prices respectively after SFAS 142 than before SFAS 142. Furthermore, in the post-SFAS 142 period, I find that the association between stock prices and goodwill is lower for firms that avoid the recognition of the existing goodwill impairments, and that goodwill write-offs are more negatively associated with stock returns for firms where managers have more discretion over the impairment testing process. Overall, the findings suggest that despite the concerns of critics over the reliability of fair value estimates of goodwill, (1) SFAS 142 has improved the usefulness of goodwill numbers from investor perspective, and (2) investors see through the differences in reliability of reported goodwill numbers. These results have implications for standard-setting as the FASB considers new alternatives for goodwill accounting.


Goodwill Goodwill impairment SFAS 142 Value-relevance 

JEL Classification

G14 M41 M44 



I thank Anwer Ahmed, Holly Ashbaugh, Daniel Bens, Donal Byard, Joachim Gassen, Ryan LaFond, William Rees, Ed Swanson, Terry Shevlin, Senyo Tse, Mike Wilkins, and seminar participants at Texas A & M University and Humboldt University of Berlin. I am grateful for research support from PSC-CUNY fund at Baruch College at City University of New York. An earlier version of this paper was titled “Evidence on the effects of SFAS 142 on investor valuation of goodwill write-offs and goodwill balances.”


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Copyright information

© Springer-Verlag Berlin Heidelberg 2016

Authors and Affiliations

  1. 1.Jindal School of ManagementThe University of Texas at DallasRichardsonUSA

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