Big Bath Earnings Management: The Case of Goodwill Impairment Under SFAS No. 142
Document Type
Article
Publication Date
4-1-2004
School
Accountancy
Abstract
The big bath theory of earnings management suggests that firms experiencing low earnings in a given year may take discretionary write downs to reduce even further the current period’s earnings. The notion is that the company and its management will not be punished proportionately more for the big hit it takes to its already depressed earnings. This “clearing of the decks” makes it easier to generate higher profits in later years. SFAS No. 142, with its new requirement to test goodwill annually for impairment, provided a unique opportunity to test this big bath theory. Examining Fortune 100 companies, this study presents compelling evidence that the big bath theory is more than just a theory but is instead a practiced method of managing earnings.
Publication Title
Journal of Applied Business Research
Volume
20
Issue
2
First Page
63
Last Page
70
Recommended Citation
Jordan, C. E.,
Clark, S. J.
(2004). Big Bath Earnings Management: The Case of Goodwill Impairment Under SFAS No. 142. Journal of Applied Business Research, 20(2), 63-70.
Available at: https://aquila.usm.edu/fac_pubs/21307