eThesis - Kauppakorkeakoulun sähköiset gradut

This thesis investigates whether a firm's corporate governance has an impact on the association between goodwill write-offs and accounting conservatism. The aim is to show that earnings are conditionally conservative and the firm's governance (measured as CEO-chairman duality) is associated with the level of conditional conservatism. In addition, I will test whether bad news increase the probability of goodwill write-offs and if the firm's governance is associated with the timeliness of goodwill write-offs. In the background there is the standard SFAS 142 which eliminated the annual amortization of goodwill and presented the annual impairment test required for goodwill. It has been criticized that this has increased managers' ability to manipulate earnings due to the unverifiable fair-values. Conservative financial reporting works as a governance mechanism and prevents potential earnings manipulation by the managers. I will investigate if the conservative financial reporting as a governance mechanism has an impact on the timeliness of goodwill write-offs.

The empirical part of this study is conducted as a linear regression and logistic regression analysis with evidence from the US collected from 2009-2013. Basu's model (1997) is used to measure conservatism. The findings show that bad news increase the probability of goodwill write-offs but no association between the corporate governance and conservatism was found. It might be that the fair-value accounting is overtaking accounting conservatism or the complex definition and measuring of corporate governance has limited this study.