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2755The credibility of firms gradually collapses with the increase of goodwill impairment, so recovering the loss of reputation and stock price caused by goodwill impairment has become the top priority of operation and management. Previous studies show that firms use earnings management in advance to avoid and delay goodwill impairment provision, or use high headroom to hide the recognition of large-scale goodwill impairment, so as to reduce the risk of stock price crash, mitigate negative market reactions, and avoid conflicts with stakeholders. However, there is little literature exploring the post-event behavior to deal with the negative impact of goodwill impairment. This paper intends to investigate this issue from the perspective of impression management.
Based on the sample of A-share listed companies from 2007 to 2021, this paper explores the means and effect of the impression management of goodwill impairment firms from the perspective of R&D expenditure capitalization. The study finds that the momentum of increasing R&D expenditure capitalization and manipulation of goodwill impairment firms decreases as the degree of goodwill impairment increases. Mechanism research shows that R&D expenditure capitalization can release signals that alleviate the negative economic consequences of goodwill impairment, improve the transparency of R&D information, and enhance the ability of industry information disclosure, as well as increase the positive market response of goodwill impairment firms. This function provides an explanation for the increase of R&D expenditure capitalization of goodwill impairment firms. Heterogeneity research shows that analyst forecast bias and performance commitment system weaken the willingness of goodwill impairment firms to increase R&D expenditure capitalization and manipulation, while positive media coverage is counterproductive.
This paper has the following contributions: First, it reveals the impression management behavior of goodwill impairment firms using R&D expenditure capitalization and manipulation, expanding the theoretical exploration of the earnings manipulation and reputation enhancement strategies of goodwill impairment firms. Second, it shows that investors of lower goodwill impairment firms have the investment psychology of “placebo effect”, revealing the reasons why investors are difficult to identify the true information of goodwill impairment firms and their risk prevention abilities are insufficient. Third, it shows that there are still functional deficiencies in external information governance, emphasizing the importance of internal control risk management and the effectiveness of financial statements, which provides new evidence and inspirations for improving the internal and external optimization mechanism of the R&D information disclosure of goodwill impairment firms in China, as well as for regulatory authorities to guide information intermediaries to disseminate true information.
