What the study found
The study found that goodwill impairment losses under IFRS are linked to both cultural differences and institutional quality across countries. It also found that stronger institutional quality is associated with larger impairment amounts and that firms in stronger institutional settings report impairments that more closely reflect underlying economic conditions.
Why the authors say this matters
The authors conclude that goodwill impairment under IFRS is not only an accounting issue but is also shaped by the institutional and cultural environment in which firms operate. They say that revising accounting standards alone is not enough for comparable reporting, and that consistent enforcement across jurisdictions remains essential.
What the researchers tested
The researchers analyzed 2,466 companies from 17 IFRS-adopting countries, using 14,898 firm-year observations from 2007 to 2013. They estimated a pooled Tobit model with year and industry fixed effects, using Hofstede's cultural dimensions and validated institutional quality measures from Alshehabi et al. (2021).
What worked and what didn't
Goodwill impairment losses were associated with firm-level economic factors and managerial reporting incentives. Power distance and individualism had direct effects in the predicted direction, while uncertainty avoidance was positively associated with impairment, which the authors interpret as consistent with income smoothing. Institutional quality, especially quality of legality and equity market development, was positively associated with impairment magnitude, and moderation analyses showed that stronger institutions reduced the sensitivity of impairment to goodwill carrying values.
What to keep in mind
The study used firm-level data rather than cash-generating-unit-level data. The sample period was limited by the availability of the validated institutional measures, and the authors note that their results provide a pre-2014 enforcement baseline for future research on later regulatory changes.
Key points
- Goodwill impairment losses under IFRS were associated with both culture and institutional quality.
- Power distance and individualism showed direct effects on impairment amounts in the predicted direction.
- Uncertainty avoidance was positively associated with impairment, which the authors link to income smoothing.
- Higher institutional quality, especially legality and equity market development, was associated with larger impairment magnitude.
- Stronger institutional environments were linked to impairment reports that more closely reflected economic conditions.
Disclosure
- Research title:
- Culture and institutions shape goodwill impairment under IFRS
- Authors:
- Mariam Alsabah, Ahmad Alshehabi
- Institutions:
- Prince Mohammad Bin Salman College of Business and Entrepreneurship, University of Southampton
- Publication date:
- 2026-07-02
- OpenAlex record:
- View
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