The Determinants of Goodwill Impairment Write-offs under FASB ASC Topic 350 (formerly known as SFAS 142) in Family Firms vs. Non-Family Firms: Evidence from the S&P 500

FASB ASC Topic 350 (SAFS 142) prescribes a new treatment for goodwill. Goodwill is no longer treated as an asset whose value declines simply by the passage of time, but instead requires testing for the impairment of goodwill at least annually. This testing process requires managers to use unverifiable estimates of the value of reporting units in order to determine whether the value of goodwill assigned to a reporting unit has been impaired and must be written down. Standard setters (FASB) contend that managers will use this unverifiable discretion to convey private information, while agency theory predicts that this unverifiable discretion will be used opportunistically.;Prior literature has argued that family firms are run in a different manner than non-family firms. Results of studies have shown evidence that family firms have better operating and stock-return results, lower cost of debt and lower incidence of abnormal accruals. This supports the argument that these family firms have interests that are aligned with those of other shareholders, rather than being entrenched, as agency theory suggests as a possibility.;Using a sample taken from the S&P 500 for 2003 and separating this sample into family firms and non-family firms, I look at the possible determinants of goodwill impairment write-offs to see if these differ between family and non-family firms. I further segregate this sample into those firms where there is a clear indication that the market has impounded impairment into the stock price (market-to-book<1) and those firms without this constraint to see if the results will hold for both groups.;Contrary to initial conjecture and the findings suggested by prior literature, debt covenant concerns, agency issues, and the unverifiable discretion afforded managers under FASB ASC Topic 350 (SFAS 142) appear to be significant factors influencing both the incidence of goodwill impairment write-offs and the magnitude of the write-off. This provides support for the agency theory view that managers are using the unverifiable discretion opportunistically, rather than standard setters' argument that the unverifiable discretion will be used to convey private information. This seems to hold for both sub-samples (MTB<1 and MTB>1) although to different extents.