Geographic distance and goodwill impairment

Abstract

PurposeThe purpose of this study is to examine the impact of asymmetric information, estimated as the geographic distance between the acquiring firm and the target firm, on goodwill impairment following a merger or acquisition.Design/methodology/approachThis study uses regression analysis to investigate the research questions of this study.FindingsThis study finds that geographic distance is positively related to the magnitude of current and cumulative goodwill impairment. The results of this study still hold even after robustness checks for other factors that affect mergers and acquisitions and sources of asymmetric information.Originality/valueThis study extends and links two distinct research streams: asymmetric information related to geographic distance studies in finance and goodwill literature in accounting. Specifically, this study extends literature on the impact of geographic distance on various firm characteristics and contributes to research regarding the determinants of goodwill impairment, a major research stream in goodwill accounting (Li and Sloan, 2016). To the best of the authors’ knowledge, this is the first study that performs a direct empirical test on the relation between geographic distance (between the acquiring firm and the target firm) and goodwill impairment.