THE EFFECT OF GOODWILL IMPAIRMENT ON SHARE PRICES

Ronald A. Stunda
Valdosta State University

ABSTRACT

This study extends prior research on the subject of goodwill by exploring the impact that
goodwill write-downs have on security prices in general, and by specific industry. Results indicate
that for firms experiencing goodwill impairment, there is a negative and significant relationship
between accounting earnings and share prices in the period immediately following the goodwill
impairment announcement. When the sample is further broken down by industry membership,
findings indicate that industry plays a role in information content of earnings when it comes to
goodwill write downs. For those industries which are considered above average growth
industries, accounting earnings are generally positive and significantly related to stock prices.
For industries considered below average growth industries, accounting earnings are generally
negative and significantly related to stock prices.

Keywords: Goodwill, FASB, intangible assets