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RESEARCH OF MANAGEMENT DECISIONS INFLUENCE ON GOODWILL WRITE-OFFS
Abstract
The objective of financial statements is to provide the true and fair view about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions. However, according to International Financial Reporting Standards, the goodwill as intangible asset not amortized but testing for annual impairment what provide company managers with an opportunity to manipulate this type of information. The objective of the research is to examine motives of company managers and their impact on the goodwill as intangible assets arising from business mergers and acquisitions write-off. In order to identify the significance of the accounting of goodwill and the motives of company managers, and to formulate hypotheses, the applied research methods included the analysis, systematization and comparison of scientific literature and the grouping of data. The following two hypotheses were posed to perform research: new managers of company are more inclined to write off goodwill than old one and new managers of company write off larger amounts of goodwill. In order to carry out empirical research and to support the raised hypotheses, correlation and regression methods were used to examine data of financial statements for the period 2005-2011 of companies listed on the NASDAQ OMX Baltic Stock Exchange. The results of theoretical research demonstrated that users of financial statements regard the data related to goodwill as important information and respond negatively to goodwill write-offs, as a result of which companies hesitate to write it off. Empirical research proved the above-mentioned hypotheses and showed that new managers of company tend to both write off goodwill and write off larger amounts of goodwill. In summary, it can be claimed that there is a direct connection between the write-offs of goodwill impairment and management decisions which are reached to gain personal benefit. New managers are more inclined to make decisions on goodwill write-offs in order to reduce the likelihood of goodwill write-offs in the future and to direct criticism at former company managers for poor decision-making regarding business mergers.
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