Has damage from goodwill impairment grown in China? : analysis and response

From the perspective of high-quality acquirers (with generated goodwill), this study analyses the conflicting issues in the formation, recognition and subsequent measurement of goodwill and finds that good enterprises are not willing to make a timely provision for goodwill impairment, and the reaction of investors implies a low value relevance of goodwill impairment disclosure. Further, trends in the market-to-book ratio indicate that the market has absorbed goodwill impairment information before its disclosure. This paper finds that listed companies may abuse goodwill and goodwill impairment standards by delaying the recognition and disclosure of goodwill impairment, which could lead to a sharp decline in the companies’ future performance. Overall, this study tends to provide some useful suggestions about how to disclose and refine goodwill impairment information under the current goodwill framework and offer suggestions to improve impairment testing, mergers and acquisitions (M&A) transactions, off-balance sheet information disclosure and corporate governance.