The announcement of the removal of the amortization of goodwill and the market's response

This study was motivated by the change in accounting for intangible assets and the removal of goodwill amortization (FASB 142). Prior research does not agree on the role goodwill has played as an asset, or on the effect of the expense of the amortization of such goodwill. The treatment of goodwill has been a difficult issue facing the accounting profession. If the announcement of the change in amortization of goodwill conveyed information to investors, one would expect there to be an impact on the market's valuation of the firm's equity. The variable of interest in the study is the information content of the announcement of the removal of the amortization of goodwill (FASB 142).; Specifically, the study tests whether or not affected firms will experience abnormal market reactions from the market's perception of the information content of the change. This study used the efficient market hypothesis to test whether there was a change in market value for firms with significant goodwill assets after the announcement was made. The announcement of FASB 142 was examined through a 21-day event window beginning ten days before the announcement and concluding the tenth day following the announcement. The population of this study was publicly traded securities in the U.S.; The contribution of this study is to support, or fail to support, the idea that goodwill is an asset of value to firms, and the market's recognition of the same. Because service and technology firms have little else in the way of long-term assets that provide future economic benefit, it is interesting that the market response to firms in this area was not found to be significantly stronger than those in merchandise and manufacturing. The findings do not support the supposition that service and technology firms would react differently to the FASB 142 announcement, and there was no statistical difference found by industry. The findings support the hypothesis that FASB 142 add information content to the market, and that the market values firms with significant goodwill, compared to those firms without goodwill.