Earnings Management Incentives And Goodwill Impairment

Goodwill is an important asset of an enterprise.Its essence is the enterprise’s core ability which can bring the excess income for the enterprise.With the rising tide of mergers and acquisitions,enterprises have confirmed a large number of goodwill assets.In recent years,many companies confirmed the huge amount of goodwill impairment.Regulators begin to pay attention to goodwill impairment and academics have been concerned about the impact of impairment of goodwill.In order to better reflect the economic substance of impairment of goodwill,China introduced the new standard of convergence with international standards in February 2006,changing the goodwill amortization method to the goodwill impairment testing method.Foreign countries have studied the impairment of goodwill from the perspective of earnings management incentives,which are mainly divided into the capital market motivation and the personal motivation of executives.While domestic literature rarely studies the impairment of goodwill from the perspective of earnings management motivation,even though there are literature from this perspective,seldom consider the impact of personal motivation in executive compensation and professional reputation on impairment of goodwill.Moreover,the existing literature also ignores the regulatory role of the nature of property rights and industry competition in the relationship between earnings management incentives and goodwill impairment.Therefore,this paper combines principal-agent theory,optimal contract theory,management defense theory and earnings Management theory,and selects non-financial industry listed companies in Shanghai and Shenzhen in 2007-2016 as samples.With empirical research methods,this paper study the earnings management motivations of goodwill impairment deeply.After regression analysis,this paper draws the following conclusions:(1)The "big bath" motivation and smooth incentive is positively correlated with goodwill impairment.(2)Executive compensation motivation is positively correlated with goodwill impairment.(3)Further research results show that High-quality external audit restrains the profit smoothing motivation of goodwill impairment;Compared with state-owned enterprises,motivation of non-state-owned enterprises to take use of goodwill impairment to earnings management is stronger.The nature of property rights does not significantly affect the relationship between executive monetary compensation motivation and goodwill impairment.Highly competitive industries are more motivated to use goodwill impairment to take "big bath" than those with low competition.(4)In highly educated or highly-qualified sample groups,the motivation of professional reputation is negatively related to impairment of goodwill.The research of this paper has a certain significance both in theory and practice.Firstly,it enriches the research of the field of goodwill impairment,and then it has some practical significance for policy makers,regulators,clients and capital market development.