Goodwill impairment - Who cares? An event study about IFRS 3 value creation on the Swedish stock market

Sammanfattning: Purpose: The aim of this paper is to find out if the current accounting rules in IFRS 3 which mandate annual tests for goodwill impairment in line with IAS 36 add any information value for users on the Swedish stock market. Methodology: The paper is based on a quantitative research method with a deductive approach to interpret investigated samples. By using an event study, we have analyzed the effects of announced goodwill-impairments during an event window of five days and 250 trading days before the event day. Finally we applied a T-test to examine the validity of the statistical findings. Theoretical perspective: The main approach is on IASB’s qualitative characteristics used in the standard settings. Also assumptions from the Efficient Market Hypothesis and Signalling theory are in use. Empirical foundation: By using the source platform Thomson Reuters Datastream, we have focused to collect financial information of Swedish-listed companies with announced goodwill impairments made in the eleven-year period of 2005-2016. An identification have been made of the first indication date of when the stock market first received relevant news regarding the company’s write-off decision. In our study, we obtained complete data on a sample of 27 accounting write-off announcements of companies listed on the Stockholm Stock Exchange. Conclusions: In summary, negative valuation effects during the announcement period are shown during the event-period’s all day with exception of -2 days of the pre-announcement period. We found statistically significant negative returns tied to goodwill write-off announcements for all days of the AAR and CAAR with an exception of the first day of the event window. By broking down the total sample by company size, we moreover found that Large Cap shows smaller correlation of the abnormal return compared to Mid- and Small Cap which both demonstrate strong negative links between stock price and an announcement of goodwill impairment.