Abstract
We find that accounting charges for goodwill impairment, which imply a deterioration in the capabilities of acquired assets to generate expected cash flows, provide useful indicators of CEO underperformance. We examine 5,990 firms that completed acquisitions and investigate the relation between CEO turnover and goodwill impairment during 2002–2016. The results show that the size of a goodwill impairment charge is positively associated with forced, but not voluntary, CEO turnovers. This implies that goodwill impairment provides information before CEO changes occur. We also find that unexpected goodwill impairment is more informative than expected good-will impairment and is associated with forced CEO turnover. The association between goodwill impairment and forced CEO turnover varies with audit quality, suggesting the perceived reliability of accounting information influences CEO retention decisions. Given that the FASB may eliminate annual goodwill impairment testing (FASB, 2019a), research addressing the informativeness of goodwill impairment charges is timely.
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