The Impact of Goodwill Impairments on Stock Prices

The purpose of this study is to determine the correlation between goodwill write-off and stock prices. Firstly, the main theoretical aspects related to the notion of goodwill and its depreciation were identified. Secondly, a review of studies analyzing the impact of goodwill impairment on company stock prices was implemented. An event study was conducted in order to assess the impact of the announcements of goodwill impairments on the value of shares of highly capitalized European companies during the periods before and after the implementation of IFRS 3. As a result, it was revealed that such announcements negatively affect the value of shares before the abolition of goodwill amortization and in the subsequent period. The indicators of cumulative average abnormal returns show significant negative values of about -5-6% in the 2-, 5-, and 11-day event windows. There is a sharp decrease in CAAR on the day of news in both of the respective periods. On the one hand, this may indicate that the financial statement is not characterized as completed and qualitative, so investors and other users of the financial statement are not able to effectively predict the future impairment of goodwill. On the other hand, it shows that information about goodwill impairment has a high degree of significance for market participants. Another important point is that the values of the cumulative average abnormal returns in the period after the abolition of goodwill amortization are higher than those of the previous period, but the difference is insignificant. Consequently, there is no evidence to suggest that the new accounting standard has changed the information content of the goodwill impairment.