Goodwill write-off and Strategic Change

Using the resource-based view of the firm, we investigate the relationship between goodwill write-off and strategic change. We hypothesize that these decisions are simultaneously taken and that the goodwill write-off accounting choice is part of a broader assessment of the corporate strategy. Using a sample of US public firms, we find that the goodwill write-off is simultaneous with the firm strategic change operationalized as strategic variation, measured as deviation from the firm prior resources allocation pattern, and as strategic deviation, measured as deviation from the average strategic profile of its competitors in the same industry. To the best of our knowledge this is the first paper to undertake this research. This paper can contribute to the resource-based theory studies, with evidence on how managers assess intangible resources exhaustion and on how managers make decisions, such as switching to alternative or search for new resources. Our paper also contributes to the goodwill accounting literature. Our results support the US Financial Accounting Standard Board’s idea that goodwill accounting discloses to the outside the management’s private information about the firm future perspectives.