On the Usefulness of Supplemental Disclosure about Fair Value Measurement: Evidence for Goodwill Impairment

This study examines the usefulness of firms' supplemental disclosure about fair value measurement used in determining goodwill impairment. We find that the level of supplemental disclosure about the specifics of goodwill impairment test in the current year is negatively associated with the recurrence of goodwill write-off in the subsequent year. We also find that investors' valuation of goodwill impairment loss is less negative for firms making more extensive disclosure about goodwill impairment test. This effect is found to be stronger for firms with more complex and subjective decision of goodwill impairment. Taken together, our results suggest that supplemental disclosure about fair value measurement enhances the verifiability of fair value-based accounting information and mitigates investors' concern about the subjectivity and opacity of firms' fair value accounting decision.