Financial statement comparability and goodwill impairments: evidence from South Korea

We examine the association between financial statement comparability and timely recognition of goodwill impairments in an IFRS setting. The study is predicated on the idea that comparability lowers investors' and analysts' information acquisition and processing costs, thus facilitating the users' ability to infer the valuation of goodwill through comparison with peer firms. This in turn reduces the managers' ability to delay the impairments of goodwill. The results support this characterisation and show that firms that have more comparable financial statements recognise goodwill impairments in a timely manner. The analysis emphasises the contextual nature of these findings, i.e., the results are more pronounced in environments characterised by low information quality, weak external monitoring, and less product market competition. Overall, these findings indicate that comparability constrains the discretion in goodwill accounting rules, and promotes financial reporting quality by timely recognition of impairments.