Timeliness of impairment recognition: Evidence from the initial adoption of SFAS 142

This research investigates the timeliness of impairment recognition from the initial adoption of Statement of Financial Accounting Standards no. 142, Goodwill and Other Intangible Assets (SFAS 142). Using a sample of firms reporting goodwill at yearend 2001, we examine the lag between incorporation in returns and recognition in earnings of 2002 goodwill impairments to provide market-based evidence on the timeliness of goodwill impairments upon the adoption of the new rule. First, our results indicate that the market anticipated the initial adoption write-offs. Second, while the concurrent association between stock returns and newly incurred impairment losses indicates timely recognition of impairments after the new standard, the market also anticipated the new impairment losses subsequent to initial adoption. This indicates that timeliness can be improved further after the adoption of SFAS 142. (C) 2008 Elsevier Ltd. All rights reserved.