more-arw search

Investors Realize Problems Before Goodwill Impairment Announced, Says Accounting Survey

People who invest in companies are aware of the problems existing in those fir

People who invest in companies are aware of the problems existing in those firms before goodwill impairments are announced, according to a recently-conducted accounting survey.

Stock performance comparison

One of the purposes of the latest rendition of the Financial Executives International (FEI) was to examine any difference in the stock performance of companies that recorded goodwill impairment to the performance of the equity markets in their entirety, according to Journal of Accountancy. The survey was developed by both FEI and investment firm Duff & Phelps.

Survey methods

The study involved more than 5,000 companies that are based in the United States and have stocks traded on the nation's exchanges, and gathered data from 1,259 individual impairment events that occurred between 2005 and 2009, the media outlet reports. The performance of the stocks of these firms was compared to the returns generated by the S&P 500 index for 12 months before and also 12 months after the event was announced.

Survey results

The research revealed that companies that had goodwill announcements underperformed the broader market both before and after such a declaration was made, according to the news source. The companies fitting this demographic experienced worse performance before the announcement was made.

Performance before announcement

During the time period of seven to 12 months before the impairment was announced, companies generated returns 4.9 percent below that of the S&P 500. During the six month period before the declaration, company stocks were 2.2 percent less than that of the benchmark index.

Performance after

For the first six months after the goodwill announcement was made, stocks of the aforementioned companies generated results 1.2 percent below that of the S&P 500. From seven to 12 months after the declaration, companies lagged the benchmark index by 0.8 percent.

Investor awareness

"It indicates that in general, investors are aware of the issues that may lead to a subsequent impairment long before the actual impairment is taken," Duff & Phelps director James Harrington stated in a webcast that was created to showcase the results of the survey.

FEI recently announced in a statement that it will ask CFOs and other senior level finance executives to provide their input on the state of financial reporting at the thirty-first annual Current Financial Reporting Issues Conference that will happen in New York City between November 12 and 13.