The Association Between Goodwill Costs and Share Prices : A comparison between the amortization regime and the impairment regime in a Swedish setting

Background: Goodwill activity has been very high in Sweden in recent years. Goodwill is regulated by IFRS 3, which came into effect in 2004. Instead of amortizing the asset over a specific number of years, goodwill should be tested for impairment every year. This change has received criticism due to its introduction of estimation of fair values and the possibility it gives managers to act discretionary, which has made it more difficult for investors to trust the financial information of the firm. Purpose: The purpose of the thesis is to examine the effects the switch from the amortization regime to the impairment regime has had on the relationship between goodwill costs and share price. The research question is if there is a difference in the association between share prices and goodwill costs between the amortization regime and the impairment regime. Method: The thesis conducts a quantitative study with a linear regression analysis to measure the association between goodwill costs and share prices. The sample consists of 19 of the firms listed on OMXS 30. In the model used for the linear regression share price is the dependent variable and there are nine different independent variables tested against share price, among which goodwill costs are included. To test if there is a difference between the two different regimes, the regression is divided into an amortization part and into an impairment part. Conclusion: The thesis concludes that it can find a difference between the amortization regime and impairment regime in the association between goodwill cost and share price. In the impairment regime goodwill cost affects share prices in contrast to the amortization regime where it does not.