Insight into the variables used to manage the goodwill impairment test under IAS 36

Many studies have dealt with the analysis of the impairment test of goodwill under the IAS 36 as an opportunistic choice, but there have been very few investigations into how managers actually use their discretionary power and what variables are used to manage the final results. Using a sample of highly capitalized European listed companies (from Germany, Italy, and UK) with book goodwill over the period 2007-2011, we try to identify the variables used by managers through the impairment test to avoid or reduce goodwill write-offs. Observing the differences between both the long-term growth rate and the actualization rate used by the managers in the test, and the same rates estimated from publicly available external sources, we found that the growth rate manipulation is a significant explanatory variable in avoiding or reducing the amount of the impairment write-off. The paper contributes to the theoretical debate on goodwill impairment as an earnings management choice, identifying some new variables used by managers to influence the results of the test. Additionally, the results have implications that are relevant for the standard-setters and regulators in terms of improvements on disclosure in notes. (C) 2015 Elsevier Ltd. All rights reserved.