Zero goodwill impairment: Sustainable firms’ performances or non-impairment of goodwill?

This paper examines the motives for reporting zero goodwill impairment after an implementation of IFRS 3 Business Combinations, which requires firms to rely on an impairment-only approach in accounting for their acquired goodwill. The investigation of the firms’ motives focused on listed firms in Malaysia from 2008-2012 that have goodwill balances and encountered the dropped in the market values which is lower than the book values of the net assets for three successive years. Based on 993 firm-years from 2008-2012, the results show that firms are more likely to report zero goodwill impairment even though their market values drop lower than the book values due to the deterioration in the current year operating cash flows compared to the prior year, new goodwill added during the year, and high book-to-market ratios. These results add to the literature by highlighting new motives for reporting zero goodwill impairment.