The impact of national culture and institutions on goodwill-impairment practices across IFRS-adopting nations

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Alshehabi, Ahmad (2016). The impact of national culture and institutions on goodwill-impairment practices across IFRS-adopting nations. University of Birmingham. Ph.D.

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Abstract

This thesis investigates the factors that influence the magnitude of goodwill impairment losses as well as the value relevance of these losses using a sample of 2,466 companies, drawn from 17 countries in which IFRSs have been made mandatory for all their domestic listed companies. The study period is 2007-2013 and includes 14,898 firm-year observations.

The results obtained from the Tobit regression analysis involving variables drawn from agency/positive accounting theory, Hofstede’s theory of culture, as well as different theoretical institutional models, reveal that goodwill-impairment amounts are not only driven by economic factors and managerial reporting incentives, but also by country-specific factors, such as cultural and institutional variables.

The results also confirm that the strength of the equity market is still the single most influential factor contributing not only to differences in accounting practices but above all, to differences in institutional quality between countries. The results of a K-means cluster analysis reveal that there are two groups of countries, corresponding to strong equity-outsider and weaker equity-outsider clusters. By comparing the relative associations between goodwill-impairment amounts and economic factors and managerial reporting incentives across these two institutional clusters, estimation results reveal that firms in the strong equity-outsider cluster have recorded goodwill-impairment losses that are, on the one hand, strongly associated with economic factors, and on the other hand, weakly associated with managerial reporting incentives.

Further analysis also showed that while results for the pooled sample did not indicate that goodwill impairment losses were value relevant this was not the case for firms in the strong equity-outsider cluster, which have recorded impairment losses that are, on average, more relevant and more timely than those recorded by firms in the weaker equity-outsider cluster.

Type of Work:

Thesis (Doctorates > Ph.D.)

Award Type:

Doctorates > Ph.D.

Supervisor(s):