Common Ownership and Goodwill Impairments
Journal
Corporate Governance: An International Review
ISSN
0964-8410
1467-8683
Date Issued
2024-03
Author(s)
Chunlai Ye
Abstract
Research Question/Issue: Are companies monitored by common owners (i.e., institutional investors that block-own [owning 5% or more] several companies in a single industry) more likely than other companies to record goodwill impairments when their assets are overstated?. Research Findings/Insights: We find that companies monitored by common owners are more likely than other companies to record goodwill impairments when their assets are overstated. The monitoring effect is stronger for common owners with a stronger incentive to monitor and with more industry knowledge and stronger for the co-presence of multiple common owners. Our findings are in line with the notion that common owners have an economy of scale in monitoring and internalize the negative externality of delayed recording of goodwill impairment. We also find that common ownership is associated with lower information asymmetry, which in turn increases the timeliness of goodwill impairment. Theoretical/Academic Implications: Our research emphasizes the monitoring role of common ownership in recording goodwill impairments. We find support for the mechanisms enabling common owners to be better monitors. Practitioner/Policy Implications: The prevalence of common ownership has prompted regulatory and societal concerns regarding under-investment in the oversight of the companies. Our findings documenting the association between common ownership and the timely recording of goodwill impairments are relevant to the ongoing debate regarding the potential costs and benefits of common ownership.
Subjects
common ownership
corporate governance
goodwill impairments
SEC
Publisher
Wiley
Type
journal article