Abstract
PurposeTo examine whether the provisions of SFAS No. 142 allow for the earnings management technique termed “big bath” and whether firm size plays a role in earnings management.Design/methodology/approachA random selection of companies with December 31, 2002 fiscal year‐ends yielded 120 firms that reported goodwill impairments in 2002 and 82 firms that did not. The firms are then stratified into two groups. Analysis consists of measuring the magnitude of the 2002 goodwill impairment loss, comparing financial metrics of impaired and non‐impaired firms, and calculating the proportion of firms with negative versus positive earnings.FindingsThe results suggest that SFAS No. 142 adoption allowed companies to engage in earnings management. Findings indicate that small firms experienced a significantly greater negative impact and were much more likely than large firms to take big bath charges.Originality/valueThis study provides evidence on the use of newly issued accounting standards to manage earnings.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
