Accounting discretion in family firms: The case of goodwill write-off. Evidence from US firms

By | 2022-02-03T12:04:47+01:00 February 3rd, 2022|

Giulio Greco, Lorenzo Neri  / Financial Reporting / 1-2021

This paper investigates whether family ownership affects decisions to take a write-off of the goodwill and the amount written off. This study is based on a panel of public United States firms. Consistent with predictions based on agency theory and socio-emotional wealth (SEW) theory, the findings demonstrate accounting discretion in goodwill impairment is lower in family firms than non-family firms. The results also show that first-generation family firms are more likely to exploit accounting discretion in goodwill impairment decisions than second or later generation family firms, due to greater concerns associated with the negative consequences of the write-off. This paper contributes to previous research on accounting in the context of family firms. Family firms cannot be considered a homogeneous group with the same propensity to exploit the discretion allowed by accounting rules in highly subjective fair value measurements. Generational change significantly influences firms’ accounting choices, leading to more credible earnings and asset values for second or later generation family firms. This study also suggests the earnings management literature would benefit from additional in-depth investigation into how the generational stage of family businesses affects accounting discretion.


Read Article

Impairment estimates for available-for-sale equity instruments under IFRS: evidence from italian Banks

By | 2017-12-27T14:07:55+01:00 December 27th, 2017|

Sannino Giuseppe, Ginesti Gianluca, Drago Carlo/Financial ReportingRiviste / Fascicolo: 2-2014

Literature indicates that accounting choices under a given set of standards is an important topic due to the different economic implications. Daske et al. (2013) suggest that firms have substantial discretion in applying IFRS. Despite the implications on how the firms apply IFRS have motivated many studies, to our knowledge, little is known about the impairment estimates for the Available-for- Sale (AfS) equity instruments. Using a sample of Italian banks over the period 2010-2011, we investigate the determinants of the accounting decisions for impairment estimates. We find that the reporting quality and profitability are explanatory factors of the banks’ decisions to modify the thresholds of the impairment indicators used to assess AfS equity instruments. Our study also suggests that banks use a substantial discretion in implementing the IAS 39 for the AfS equity instruments.

Keywords: Financial instruments, IAS/IFRS, accounting choices, impairment, financial reporting.



Why Do Firms Write Off Their Goodwill? A Comparison of Different Accounting Systems

By | 2017-12-22T14:50:30+01:00 December 22nd, 2017|

Avallone Francesco, Gabbioneta Claudia, Ramassa Paola, Sorrentino Marco/ Financial ReportingRiviste /Fascicolo: 1-2015

Increased comparability of financial statements across adopting countries is one of the main objectives of IFRS adoption. The level of achievement of this objective, however, is still debatable. While some studies have documented that crosscountry comparability of financial statements has increased after IFRS adoption, other studies have found that comparability has actually decreased since 2005. We contribute to this debate by studying whether the motivations for goodwill writeoff are the same or vary across countries with different accounting systems. Although a good deal of research has investigated the motivations for goodwill writeoff, our study is the first to analyze whether these motivations vary across countries with different accounting systems. We find that firms that expect low cash flows in the future are more likely to report goodwill write-offs if they are located in countries with an Anglo-Saxon accounting system than if they are located in countries with a Continental accounting system. These results suggest that IFRS are “interpreted” differently in different countries and that harmonization of financial statements has not been fully achieved yet.

Keywords: Goodwill, impairment, IFRS, accounting systems

Read Article