| The growing importance of goodwill of a firm has prompted numerous studies on goodwill, but little is known about the date choice for goodwill impairment evaluations, a basic yet essential element in determining the incidence of goodwill write-off. This study examines two research questions: 1) what factors influence firms' decisions to choose one of the four fiscal quarters for annual goodwill impairment tests; and 2) is there any predictable pattern in the direction and timing of date changes in annual goodwill impairment tests? I found that Q1-adopters are rare, and that Q4 adopters are the majority. In addition, the frequency of interim goodwill impairment tests is negatively associated with the selection of Q4 test dates, and the CEO cash bonus amount and firm size are positively associated with the likelihood of selecting Q2/Q3. These results are consistent with the relevance of several economic and opportunistic factors: 1) interim impairment test avoidance, 2) end-of-year surprise avoidance, 3) avoiding the tainting of prior-year results, 4) work flow management, and 5) implementation-year cost minimization. In the post-adoption period, firms converge to Q4 dates and move away from Q1 dates. Moreover, consistent with adaptive theory, which argues that events trigger changes, I find that firms are more likely to make date changes when triggering events occur, such as expected goodwill write-off, additional impairment tests after the annual test quarter, and/or goodwill write-off from annual tests. The positive association between future goodwill write-off and the likelihood of date change implies that the test date change may contain material forward-looking information. This study is the first to apply inertia theory and adaptive theory from the organizational change literature to the accounting choice literature. This paper is also the first to examine date choice for asset impairment tests. Finally, this study complements the accounting choice literature by looking at multiple conflicting economic and opportunistic factors for an accounting choice. |
