Family and Government-Controlled Firms and their Recognition of Goodwill Impairment

Abstract

Abstract: Given a highly concentrated family and government ownership in Malaysia, this paper argues that family and government control could have some influence on a firm's recognition of goodwill impairment. The 'entrenchment effect' in a controlling firm which results in expropriation of minority shareholder assets may reduce a firm's value. Therefore, the effect increases the tendency of managers to manipulate earnings. Evidence shows that family-controlled firms are more likely to record goodwill impairment than non family-controlled firms. The results are, however, not significant in government-controlled firms. Similar evidence with prior studies is found where Malaysian firms are more likely to recognize goodwill impairment loss in their first year of adoption than in the subsequent years.