How does economic policy uncertainty influence the timeliness of goodwill impairment? Australian evidence

This article investigates the effect of economic policy uncertainty (EPU) on Australian-listed firms’ decisions regarding goodwill impairment loss recognition. Australia has experienced frequent political leadership turnover at a federal level since 2008, increasing policy uncertainty. Using an index measure of EPU, our analyses show that EPU attenuates the timeliness of goodwill impairment, and this impact is more pronounced in firms that are mature, with severe financial constraints, and are in economically important states. To mitigate potential noise in the market-based indicator of impairment losses during periods of high EPU, we adopt a non-market-based indicator, and the results corroborate that goodwill impairment disclosure is potentially unreliable for investors’ decision-making during economic uncertainty. The findings remain robust after addressing potential endogeneity, controlling for measurement errors, business cycles and other macroeconomic confounding factors. JEL Classification : G32, M41