Is goodwill impairment disclosure used as an impression management strategy?

Purpose Goodwill recognized in a business combination is one of the most controversial issues in financial reporting, and is subject to a vast amount of disclosure in the financial statements. Based on the impression management framework, this paper investigates the managerial determinants of compliance with the disclosure requirements on the goodwill impairment test. Design/methodology/approach The authors construct a disclosure index and hand-collect the information disclosed in the notes to the financial statements. The authors perform univariate and multivariate analyses, estimating panel data models in Spanish IBEX 35 firms, in 2008–2017. Findings Compliance with the impairment test information requirements is used as an impression management strategy to conceal opportunistic behavior related to non-impairment and signal positive values related to growth opportunities and low leverage. Research limitations/implications The results are based on a single country, characterized by low enforcement and although that helps to consider the role of impression management under a compulsory reporting system, it also requires some caution in their generalization. Practical implications The results might be useful for advancing the current International Accounting Standards Board (IASB) project, but also for other stakeholders since understanding firms' behavior facilitates making decisions. They might also help managers to reconsider their disclosure strategies towards third parties. Social implications The results may be useful for society, since they show a likely consequence of managerial opportunistic behavior. They could also assist regulators and enforcers to identify firms with incentives for non-compliance. Originality/value This study provides a theoretical and conceptual contribution to explain how firms use disclosure as a managerial strategy in a rather different context to the one used in previous research since it focuses on audited and regulated corporate reports. It is based on the impression management as the vehicle to strategically manipulate users' insights and decisions.