eThesis - Kauppakorkeakoulun sähköiset gradut

The relevance of goodwill has become an increasingly important topic for accounting since FASB and IASB have both taken stance toward fair value accounting. There are many studies about market reactions and abnormal profits in acquisitions and also about the association between goodwill impairments and the market value. However, the findings of previous studies are somewhat inconsistent.

This thesis examines the association between new purchased goodwill and the market value and also the association between goodwill write-offs and the market value. Also the impact that goodwill write-offs have on quality and relevance of the balance sheet is studied. Analysis is done through ordinary linear least squares regression. Goodwill balance increases through acquisition as a part of the acquisition price is allocated to the goodwill. Goodwill balance can be later impaired if its fair value is lower than its balance value. This goodwill write-off decreases the balance value.

Findings show that neither purchased goodwill nor goodwill write-offs are fully associated with the market value. Purchased goodwill has significant positive impact on the market value. On the other hand, goodwill write-offs have significant negative impact on the market value. There is also evidence that after a goodwill write-off is done the balance sheet better represents its fair value. Thus, quality and relevance of the balance sheet improves for investors.