The impairment test of goodwill: an empirical analysis of incentives for earnings management in Italian publicly traded companies

Since the current International Accounting Standard 36 introduced substantial subjectivity while testing goodwill for impairment, this study aims to establish if management exploits the discretion and performs the impairment test of goodwill opportunistically. The presence of discretion, while applying impairment test, is tested on the sample of Italian publicly traded companies in the period of the current financial crisis. Despite the fact that the sample of companies consists of those with market to book ratio less than one, only 26% of the companies recorded a goodwill write-off. The logistic regression was used to test contracting and reporting incentives. The results of the analysis indicate that even in the case of IFRS users some incentives exist, while recognising the impairment losses of goodwill.