Goodwill Impairment: earnings management evidence in brazilian companies
Keywords:
Earnings management. Goodwill impairment. Income smoothing. Small loss avoidance.
Abstract
Objective: Analyze whether firms use the discretion of registering goodwill impairment (GI) to practice EM (Earnings Management), especially via income smoothing and small loss avoidance.
Method: We use quarterly data from Brazilian companies registered at the Brazilian Securities and Exchange Commission (CVM) from 2010-Q1 to 2019-Q3. The data on goodwill impairment expenses were hand-collected from the firms’ financial statements, and the other data come from Economatica. We use of the EM measures from Leuz, Nanda, and Wysocki (2003). Then, we investigate the characteristics of the companies associated with the decision to register losses due to the impairment of goodwill via a logistic regression.
Originality/Relevance: This research innovates analyzing the impact of goodwill impairment on Brazilian firms’ earnings management, including one little studied practice, the small loss avoidance. Besides, the research is relevant from the practical perspective, raising the need of a greater caution when analyzing firms which reported goodwill impairment losses.
Results: The results show evidence that firms use the discretion in registering GI to avoid disclosing losses, but there is no evidence regarding earnings smoothing. Companies with higher goodwill values, less profitable, and with lower expected loss values tend to recognize impairment more frequently. Therefore, we conclude there is some evidence that firms carry out EM via impairment of goodwill in Brazil, specifically via small loss avoidance. The main contribution of the paper is to help the several economic agents who use accounting reports for decision making. Besides, the study adds to the earnings management theoretical framework discussing the role of GI and analyzing earnings smoothing and small loss avoidance in the Brazilian context, given the few extant works on these issues.
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References
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AbuGhazaleh, N. M., Al-Hares, O. M., & Roberts, C. (2011). Accounting discretion in goodwill impairments: UK evidence. Journal of International Financial Management & Accounting, 22(3), 165–204. https://doi.org/10.1111/j.1467-646X.2011.01049.x
Almeida, D. L. de, Costa, P. de S., Martins, E., & Martins, E. A. (2010). Goodwill: Uma análise dos conceitos utilizados em trabalhos científicos. Revista Contabilidade & Finanças, 21(52), 1–25. https://doi.org/10.1590/S1519-70772010000100005
Barbosa, J. D. S., Clemente, A., Consoni, S., & Scherer, L. M. (2014). Impairment no goodwill: Uma análise baseada na divulgação contábil. Revista de Educação e Pesquisa Em Contabilidade (REPeC), 8(2), 159-179. https://doi.org/10.17524/repec.v8i2.1028
Bierman, H. (1966). Financial Accounting Theory. The Journal of Finance, 21(3), 571-572. https://doi.org/10.2307/2977845
Bradbury, M., Godfrey, J. M., & Koh, P.-S. (2003). Investment opportunity set influence on goodwill amortisation. Asia-Pacific Journal of Accounting & Economics, 10(1), 57–79. https://doi.org/10.1080/16081625.2003.10510615
Burgstahler, D., & Dichev, I. (1997). Earnings management to avoid earnings decreases and losses. Journal of Accounting and Economics, 24(1), 99–126. https://doi.org/10.1016/S0165-4101(97)00017-7
Cappellesso, G., Prieto, M. de F., & Rodrigues, J. M. (2017). Redução ao valor recuperável do goodwill: Evidências do gerenciamento de resultados em sua determinação. Advances in Scientific and Applied Accounting, 10(3), 286–303.
Chalmers, K., Clinch, G., & Godfrey, J. M. (2008). Adoption of international financial Reporting Standards: Impact on the value relevance of intangible assets. Australian Accounting Review, 18(3), 237–247. https://doi.org/10.1111/j.1835-2561.2008.0028.x
Chipper, K. (1989). Commentary on earnings management. Accounting Horizons, 3(4), 91–102.
Clark, S. J., & Jordan, C. E. (2011). Big bath earnings management: The case of goodwill impairment under SFAS No. 142. Journal of Applied Business Research (JABR), 20(2), 63-70. https://doi.org/10.19030/jabr.v20i2.2206
Coppens, L., & Peek, E. (2005). An analysis of earnings management by European private firms. Journal of International Accounting, Auditing, and Taxation, 14(1), 1-17. https://doi.org/10.1016/j.intaccaudtax.2005.01.002
Costa, F. M. da, Dantas, J. A., Galdi, F. C., & Medeiros, O. R. de. (2013). Gerenciamento de resultados em bancos com uso de TVM: Validação de modelo de dois estágios. Revista Contabilidade & Finanças, 24(61), 37–54. https://doi.org/10.1590/S1519-70772013000100005
Cruz, A. P. C. da, Lima, G. A. S. F. de, Machado, E. A., & Takamatsu, R. T. (2013). Evidências de disclosure de valor recuperável de ativos em firmas listadas no mercado acionário brasileiro. Revista Universo Contábil, 11, 86–103. https://doi.org/10.4270/ruc.2013105
Dechow, P. M., Richardson, S. A., & Tuna, I. (2003). Why are earnings kinky? An examination of the earnings management explanation. Review of Accounting Studies, 8(2), 355-384. https://doi.org/10.1023/A:1024481916719
Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1996). Causes and consequences of earnings manipulation: An analysis of firms subject to enforcement actions by the SEC. Contemporary Accounting Research, 13(1), 1–36. https://doi.org/10.1111/j.1911-3846.1996.tb00489.x
Degeorge, F., Patel, J., & Zeckhauser, R. (1999). Earnings management to exceed thresholds. The Journal of Business, 72(1), 1–33. https://doi.org/10.1086/209601
Giner, B., & Pardo, F. (2015). How ethical are managers’ goodwill impairment decisions in Spanish-listed firms? Journal of Business Ethics, 132(1), 21–40. https://doi.org/10.1007/s10551-014-2303-8
Goulart, A. M. C. (2007). Gerenciamento de resultados contábeis em instituições financeiras no Brasil (Tese de Doutorado). Faculdade de Economia, Administração e Contabilidade, Universidade de São Paulo, São Paulo, SP, Brasil.
Hansen, J. C. (2010). The effect of alternative goals on earnings management studies: An earnings benchmark examination. Journal of Accounting and Public Policy, 29(5), 459-480. https://doi.org/10.1016/j.jaccpubpol.2010.06.002
Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. SSRN Electronic Journal, November. https://doi.org/10.2139/ssrn.156445
Jahmani, Y., Dowling, W. A., & Torres, P. D. (2010). Goodwill impairment: A new window for earnings management? Journal of Business & Economics Research (JBER), 8(2). https://doi.org/10.19030/jber.v8i2.669
Jones, J. J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 29(2), 193-228. https://doi.org/10.2307/2491047
Kirschenheiter, M., & Melumad, N. D. (2002). Can “big bath” and earnings smoothing co-exist as equilibrium financial reporting strategies? Journal of Accounting Research, 40(3), 761–796. https://doi.org/10.1111/1475-679X.00070
Klann, R. C., Morás, V. R., Pletsch, C. S., & Vogt, M. (2016). Determinantes do reconhecimento das perdas por impairment do goodwill. Revista Contabilidade & Finanças, 27(72), 349–362. https://doi.org/10.1590/1808-057x201602010
Leuz, C., Nanda, D., & Wysocki, P. D. (2003). Earnings management and investor protection: An international comparison. Journal of Financial Economics, 69(3), 505–527. https://doi.org/10.1016/S0304-405X(03)00121-1
Martinez, A. L. (2002). “Gerenciamento” dos resultados contábeis: Estudo empírico das companhias abertas brasileiras (Tese de Doutorado). Faculdade de Economia, Administração e Contabilidade, Universidade de São Paulo, São Paulo, SP, Brasil. Recuperado de https://doi.org/10.11606/T.12.2002.tde-14052002-110538
Martinez, A. L. (2006). Minimizando a variabilidade dos resultados contábeis: Estudo empírico do income smoothing no Brasil. Revista Universo Contábil, 2(1), 9–25.
Martinez, A. L. (2008). Detectando earnings management no Brasil: Estimando os accruals discricionários. Revista Contabilidade & Finanças, 19(46), 7–17. https://doi.org/10.1590/S1519-70772008000100002
Matsumoto, A. S., & Parreira, E. M. (2007). Uma pesquisa sobre o gerenciamento de resultados contábeis: Causas e consequências. UNB Contábil, 10(1), 141–157. https://cgg-amg.unb.br/index.php/contabil/article/viewArticle/151
McNichols, M., & Wilson, G. P. (1988). Evidence of earnings management from the provision for bad debts. Journal of Accounting Research, 26, 1-31. https://doi.org/10.2307/2491176
Nardi, P. C. C., & Nakao, S. H. (2009). Gerenciamento de resultados e a relação com o custo da dívida das empresas brasileiras abertas. Revista Contabilidade & Finanças, 20(51), 77–100. https://doi.org/10.1590/S1519-70772009000300006
Niyama, J. K., Ono, H. M., & Rodrigues, J. M. (2011). Disclosure sobre impairment: Uma análise comparativa das companhias abertas brasileiras em 2008. Revista De Contabilidade Do Mestrado Em Ciências Contábeis Da UERJ, 15(1), 67–87. http://www.atena.org.br/revista/ojs-2.2.3-08/index.php/UERJ/article/view/889
Niyama, J., Rodrigues, A. M., & Rodrigues, J. (2015). Some thoughts on creative accounting and international accounting standards. Revista Universo Contábil, 61, 69–87. https://doi.org/10.4270/ruc.2015104
Paulo, E. (2007). Manipulação das informações contábeis: Uma análise teórica e empírica sobre os modelos operacionais de detecção de gerenciamento de resultados (Tese de Doutorado). Faculdade de Economia, Administração e Contabilidade, Universidade de São Paulo, São Paulo, SP, Brasil.
Pronunciamento técnico CPC 01, de 06 de agosto de 2010. Redução ao valor recuperável de ativos. Recuperado de http://static.cpc.aatb.com.br/Documentos/27_CPC_01_R1_rev%2012.pdf
Pronunciamento técnico CPC 15, de 03 de novembro de 2011. Combinação de negócios. Recuperado de http://www.cpc.org.br/CPC/Documentos-Emitidos/Pronunciamentos/Pronunciamento?Id=46
Pronunciamento técnico CPC 18, de 07 de dezembro de 2012. Investimento em coligada, em controlada e em empreendimento controlado em conjunto. Recuperado de http://www.cpc.org.br/CPC/Documentos-Emitidos/Pronunciamentos/Pronunciamento?Id=49
Ramanna, K., & Watts, R. L. (2012). Evidence on the use of unverifiable estimates in required goodwill impairment. Review of Accounting Studies, 17(4), 749–780. https://doi.org/10.1007/s11142-012-9188-5
Santana, V. F., & Sarquis, R. W. (2021). Earnings management to avoid earnings decreases and losses: an exploration across the world. Revista Catarinense da Ciência Contábil, 20, e3153-e3153. https://doi.org/10.16930/2237-766220213153
Schroeder, R., & Sevin, S. (2005). Earnings management: Evidence from SFAS No. 142 reporting. Managerial Auditing Journal, 20(1), 47–54. https://doi.org/10.1108/02686900510570696
Skinner, D. J., & Sloan, R. G. (1999, July). Earnings surprises, growth expectations, and stock returns: Don’t let an earnings torpedo sink your portfolio. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.172060
Trueman, B., & Titman, S. (1988). An explanation for accounting income smoothing. Journal of Accounting Research, 26, 127-139. https://doi.org/10.2307/2491184
Tucker, J. W., & Zarowin, P. A. (2006). Does income smoothing improve earnings informativeness? The Accounting Review, 81(1), 251–270. https://doi.org/10.2308/accr.2006.81.1.251
Zang, A. Y. (2012). Evidence on the trade-off between real activities manipulation and accrual-based earnings management. Accounting Review, 87(2), 675–703. https://doi.org/10.2308/accr-10196
AbuGhazaleh, N. M., Al-Hares, O. M., & Haddad, A. E. (2012). The value relevance of goodwill impairments: UK evidence. International Journal of Economics and Finance, 4(4), 206-216. https://doi.org/10.5539/ijef.v4n4p206
AbuGhazaleh, N. M., Al-Hares, O. M., & Roberts, C. (2011). Accounting discretion in goodwill impairments: UK evidence. Journal of International Financial Management & Accounting, 22(3), 165–204. https://doi.org/10.1111/j.1467-646X.2011.01049.x
Almeida, D. L. de, Costa, P. de S., Martins, E., & Martins, E. A. (2010). Goodwill: Uma análise dos conceitos utilizados em trabalhos científicos. Revista Contabilidade & Finanças, 21(52), 1–25. https://doi.org/10.1590/S1519-70772010000100005
Barbosa, J. D. S., Clemente, A., Consoni, S., & Scherer, L. M. (2014). Impairment no goodwill: Uma análise baseada na divulgação contábil. Revista de Educação e Pesquisa Em Contabilidade (REPeC), 8(2), 159-179. https://doi.org/10.17524/repec.v8i2.1028
Bierman, H. (1966). Financial Accounting Theory. The Journal of Finance, 21(3), 571-572. https://doi.org/10.2307/2977845
Bradbury, M., Godfrey, J. M., & Koh, P.-S. (2003). Investment opportunity set influence on goodwill amortisation. Asia-Pacific Journal of Accounting & Economics, 10(1), 57–79. https://doi.org/10.1080/16081625.2003.10510615
Burgstahler, D., & Dichev, I. (1997). Earnings management to avoid earnings decreases and losses. Journal of Accounting and Economics, 24(1), 99–126. https://doi.org/10.1016/S0165-4101(97)00017-7
Cappellesso, G., Prieto, M. de F., & Rodrigues, J. M. (2017). Redução ao valor recuperável do goodwill: Evidências do gerenciamento de resultados em sua determinação. Advances in Scientific and Applied Accounting, 10(3), 286–303.
Chalmers, K., Clinch, G., & Godfrey, J. M. (2008). Adoption of international financial Reporting Standards: Impact on the value relevance of intangible assets. Australian Accounting Review, 18(3), 237–247. https://doi.org/10.1111/j.1835-2561.2008.0028.x
Chipper, K. (1989). Commentary on earnings management. Accounting Horizons, 3(4), 91–102.
Clark, S. J., & Jordan, C. E. (2011). Big bath earnings management: The case of goodwill impairment under SFAS No. 142. Journal of Applied Business Research (JABR), 20(2), 63-70. https://doi.org/10.19030/jabr.v20i2.2206
Coppens, L., & Peek, E. (2005). An analysis of earnings management by European private firms. Journal of International Accounting, Auditing, and Taxation, 14(1), 1-17. https://doi.org/10.1016/j.intaccaudtax.2005.01.002
Costa, F. M. da, Dantas, J. A., Galdi, F. C., & Medeiros, O. R. de. (2013). Gerenciamento de resultados em bancos com uso de TVM: Validação de modelo de dois estágios. Revista Contabilidade & Finanças, 24(61), 37–54. https://doi.org/10.1590/S1519-70772013000100005
Cruz, A. P. C. da, Lima, G. A. S. F. de, Machado, E. A., & Takamatsu, R. T. (2013). Evidências de disclosure de valor recuperável de ativos em firmas listadas no mercado acionário brasileiro. Revista Universo Contábil, 11, 86–103. https://doi.org/10.4270/ruc.2013105
Dechow, P. M., Richardson, S. A., & Tuna, I. (2003). Why are earnings kinky? An examination of the earnings management explanation. Review of Accounting Studies, 8(2), 355-384. https://doi.org/10.1023/A:1024481916719
Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1996). Causes and consequences of earnings manipulation: An analysis of firms subject to enforcement actions by the SEC. Contemporary Accounting Research, 13(1), 1–36. https://doi.org/10.1111/j.1911-3846.1996.tb00489.x
Degeorge, F., Patel, J., & Zeckhauser, R. (1999). Earnings management to exceed thresholds. The Journal of Business, 72(1), 1–33. https://doi.org/10.1086/209601
Giner, B., & Pardo, F. (2015). How ethical are managers’ goodwill impairment decisions in Spanish-listed firms? Journal of Business Ethics, 132(1), 21–40. https://doi.org/10.1007/s10551-014-2303-8
Goulart, A. M. C. (2007). Gerenciamento de resultados contábeis em instituições financeiras no Brasil (Tese de Doutorado). Faculdade de Economia, Administração e Contabilidade, Universidade de São Paulo, São Paulo, SP, Brasil.
Hansen, J. C. (2010). The effect of alternative goals on earnings management studies: An earnings benchmark examination. Journal of Accounting and Public Policy, 29(5), 459-480. https://doi.org/10.1016/j.jaccpubpol.2010.06.002
Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. SSRN Electronic Journal, November. https://doi.org/10.2139/ssrn.156445
Jahmani, Y., Dowling, W. A., & Torres, P. D. (2010). Goodwill impairment: A new window for earnings management? Journal of Business & Economics Research (JBER), 8(2). https://doi.org/10.19030/jber.v8i2.669
Jones, J. J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 29(2), 193-228. https://doi.org/10.2307/2491047
Kirschenheiter, M., & Melumad, N. D. (2002). Can “big bath” and earnings smoothing co-exist as equilibrium financial reporting strategies? Journal of Accounting Research, 40(3), 761–796. https://doi.org/10.1111/1475-679X.00070
Klann, R. C., Morás, V. R., Pletsch, C. S., & Vogt, M. (2016). Determinantes do reconhecimento das perdas por impairment do goodwill. Revista Contabilidade & Finanças, 27(72), 349–362. https://doi.org/10.1590/1808-057x201602010
Leuz, C., Nanda, D., & Wysocki, P. D. (2003). Earnings management and investor protection: An international comparison. Journal of Financial Economics, 69(3), 505–527. https://doi.org/10.1016/S0304-405X(03)00121-1
Martinez, A. L. (2002). “Gerenciamento” dos resultados contábeis: Estudo empírico das companhias abertas brasileiras (Tese de Doutorado). Faculdade de Economia, Administração e Contabilidade, Universidade de São Paulo, São Paulo, SP, Brasil. Recuperado de https://doi.org/10.11606/T.12.2002.tde-14052002-110538
Martinez, A. L. (2006). Minimizando a variabilidade dos resultados contábeis: Estudo empírico do income smoothing no Brasil. Revista Universo Contábil, 2(1), 9–25.
Martinez, A. L. (2008). Detectando earnings management no Brasil: Estimando os accruals discricionários. Revista Contabilidade & Finanças, 19(46), 7–17. https://doi.org/10.1590/S1519-70772008000100002
Matsumoto, A. S., & Parreira, E. M. (2007). Uma pesquisa sobre o gerenciamento de resultados contábeis: Causas e consequências. UNB Contábil, 10(1), 141–157. https://cgg-amg.unb.br/index.php/contabil/article/viewArticle/151
McNichols, M., & Wilson, G. P. (1988). Evidence of earnings management from the provision for bad debts. Journal of Accounting Research, 26, 1-31. https://doi.org/10.2307/2491176
Nardi, P. C. C., & Nakao, S. H. (2009). Gerenciamento de resultados e a relação com o custo da dívida das empresas brasileiras abertas. Revista Contabilidade & Finanças, 20(51), 77–100. https://doi.org/10.1590/S1519-70772009000300006
Niyama, J. K., Ono, H. M., & Rodrigues, J. M. (2011). Disclosure sobre impairment: Uma análise comparativa das companhias abertas brasileiras em 2008. Revista De Contabilidade Do Mestrado Em Ciências Contábeis Da UERJ, 15(1), 67–87. http://www.atena.org.br/revista/ojs-2.2.3-08/index.php/UERJ/article/view/889
Niyama, J., Rodrigues, A. M., & Rodrigues, J. (2015). Some thoughts on creative accounting and international accounting standards. Revista Universo Contábil, 61, 69–87. https://doi.org/10.4270/ruc.2015104
Paulo, E. (2007). Manipulação das informações contábeis: Uma análise teórica e empírica sobre os modelos operacionais de detecção de gerenciamento de resultados (Tese de Doutorado). Faculdade de Economia, Administração e Contabilidade, Universidade de São Paulo, São Paulo, SP, Brasil.
Pronunciamento técnico CPC 01, de 06 de agosto de 2010. Redução ao valor recuperável de ativos. Recuperado de http://static.cpc.aatb.com.br/Documentos/27_CPC_01_R1_rev%2012.pdf
Pronunciamento técnico CPC 15, de 03 de novembro de 2011. Combinação de negócios. Recuperado de http://www.cpc.org.br/CPC/Documentos-Emitidos/Pronunciamentos/Pronunciamento?Id=46
Pronunciamento técnico CPC 18, de 07 de dezembro de 2012. Investimento em coligada, em controlada e em empreendimento controlado em conjunto. Recuperado de http://www.cpc.org.br/CPC/Documentos-Emitidos/Pronunciamentos/Pronunciamento?Id=49
Ramanna, K., & Watts, R. L. (2012). Evidence on the use of unverifiable estimates in required goodwill impairment. Review of Accounting Studies, 17(4), 749–780. https://doi.org/10.1007/s11142-012-9188-5
Santana, V. F., & Sarquis, R. W. (2021). Earnings management to avoid earnings decreases and losses: an exploration across the world. Revista Catarinense da Ciência Contábil, 20, e3153-e3153. https://doi.org/10.16930/2237-766220213153
Schroeder, R., & Sevin, S. (2005). Earnings management: Evidence from SFAS No. 142 reporting. Managerial Auditing Journal, 20(1), 47–54. https://doi.org/10.1108/02686900510570696
Skinner, D. J., & Sloan, R. G. (1999, July). Earnings surprises, growth expectations, and stock returns: Don’t let an earnings torpedo sink your portfolio. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.172060
Trueman, B., & Titman, S. (1988). An explanation for accounting income smoothing. Journal of Accounting Research, 26, 127-139. https://doi.org/10.2307/2491184
Tucker, J. W., & Zarowin, P. A. (2006). Does income smoothing improve earnings informativeness? The Accounting Review, 81(1), 251–270. https://doi.org/10.2308/accr.2006.81.1.251
Zang, A. Y. (2012). Evidence on the trade-off between real activities manipulation and accrual-based earnings management. Accounting Review, 87(2), 675–703. https://doi.org/10.2308/accr-10196
Published
2025-07-04
How to Cite
Delgado, E. R., & Santana, V. de F. (2025). Goodwill Impairment: earnings management evidence in brazilian companies. Enfoque: Reflexão Contábil, 44(2), 63-83. https://doi.org/10.4025/enfoque.v44i2.62061
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