Market Valuation Responses to Goodwill Announcements : An Early Direct Test of FASB 142

This study provides evidence from an early direct test of the Financial Accounting Standards Board (FASB) 142 policy statement regarding investor market reaction to corporate goodwill impairment announcements. Under new rules, the amortization of goodwill is replaced with a two-step procedure to determine if goodwill is impaired. We draw a sample of 188 firms announcing impairment tests during the period of 2001-2003 to investigate market reactions. The findings for overall sample indicate that firms with impairment test announcements experience statistically significant negative abnormal returns. The findings further show that the abnormal returns are negative for NYSE and AMEX NASDAQ listed stocks. When we analyze the industry affiliation of firms and abnormal returns based on the primary SIC of firms, we find varying market reactions to goodwill announcements among industries. The findings are consistent with an information efficiency view of the market and one other related study of similar design, conducted before the effective date of FASB 142