CEOs 'reluctant to write down goodwill'
Chief executives reluctant to impair goodwill amid continuing economic uncertainty
GOODWILL IMPAIRMENT write-downs have hit a five-year low despite ongoing economic challenges, and CEOs might be behind this reluctance to send out negative messages.
A study by investment bank Houlihan Lokey shows just €14bn (£12bn) was booked as goodwill impairment last year, compared to €187bn between 2006 and 2010.
Goodwill is the value of a company over and above the net value of its assets, and might be marked down – or impaired – due to difficult market conditions or factors affecting a business’s commerciality.
Last year’s analysis also showed 22% of 600 companies examined showed high impairment risk, significantly more than the 7% seen in 2006.
Sandy Purcell, senior managing director and co-author of the study, said: “It’s interesting to note that impairments are at their lowest level in five years despite an overall downward movement in market capitalisation levels. It’s also apparent that the issue of whether or not to make goodwill write-downs is closely connected to the individual decisions of the chief executives, and these executives are not keen on communicating goodwill impairments during a time of increasing uncertainty, even if their market capitalisation is also in decline.”