Managerial ability and goodwill impairment: evidence from China

Abstract

Purpose

This paper aims to examine the effects of managerial ability (MA) on the likelihood and the timeliness of goodwill impairment and explore whether the desirable effect of MA vary with the degree of agency problems.

Design/methodology/approach

The authors propose a unified framework to simultaneously examine the effects of MA on the likelihood and the timeliness of goodwill impairment by incorporating a market-based impairment indicator (denoted as BTM), MA and the interaction of BTM with MA to this study’s regression model to account for the likelihood of goodwill impairment. BTM addresses the timeliness of goodwill impairment.

Findings

This study finds that firms with higher MA have lower likelihood of goodwill impairment, and such firms are more likely to recognize goodwill impairment in a timely manner when the underlying value of goodwill is economically impaired. This desirable effect of MA is more pronounced in non-state-owned enterprise (SOEs) and firms without chief executive officer (CEO) duality.

Practical implications

Firms can reduce the losses arising from goodwill impairment by enhancing the ability of their management teams combined with improved corporate governance structure.

Originality/value

This paper provides novel insights on understanding the role of MA in not only reducing the likelihood but also enhancing the timeliness of goodwill impairment. The findings help advance the upper echelons theory by uncovering the heterogenous effects of executives with different levels of ability.

Citation

Huang, Q. and Xiong, M. (2024), "Managerial ability and goodwill impairment: evidence from China", International Journal of Emerging Markets, Vol. 19 No. 4, pp. 921-940. https://doi.org/10.1108/IJOEM-08-2021-1265