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Journal article
Relevance of goodwill impairments to cash flow prediction and forecasting
Journal of accounting, auditing and finance, Vol.31(3), pp.339-364
31
2015
Web of Science ID: WOS:000378726500002
Abstract
This study examines the contribution of goodwill impairment information to the prediction and forecasting of future operating cash flows. Extending the framework of Barth, Cram, and Nelson, we find that explicitly including goodwill impairments incrementally improves 1-year-ahead cash flow prediction and forecasting. Improved cash flow forecasting is present over the entire 2001-2009 study period as well as for each year within the study window. In addition, goodwill impairments retain their significance and predictive power when other non-recurring charges (e.g., restructuring, asset write-downs, and merger and acquisition costs) are added to the model, both individually and aggregately, and when market-related information (i.e., change in market capitalization) is included in the model. While these findings are validated by in-sample prediction techniques, this study is also one of only a few studies to investigate the incremental, out-of-sample predictive power of noncurrent accruals on reported (as opposed to computed) operating cash flows. Analysts, investors, creditors, and others interested in future cash flows should separately consider goodwill impairment information, when available, to improve the accuracy of cash flow prediction and forecasting.
Details
- Title
- Relevance of goodwill impairments to cash flow prediction and forecasting
- Publication Details
- Journal of accounting, auditing and finance, Vol.31(3), pp.339-364
- Resource Type
- Journal article
- Publisher
- Sage Publications, Inc.; United States
- Series
- 31
- Format
- pdf
- Copyright
- © The Author(s) 2015
- Identifiers
- WOS:000378726500002; 99380090646406600
- Academic Unit
- Accounting and Finance
- Language
- English