Product market competition and goodwill impairment avoidance

Purpose This study examines the impact of product market competition on goodwill impairment avoidance in the emerging economy. Design/methodology/approach Regression analyses are performed using a large sample of publicly listed firms with available data during 2008–2020 in China. Difference-in-differences (DiD) design, parallel trends analysis and instrumental variable (IV) approach are employed to address endogeneity. Cross-sectional analyses and robustness tests are conducted for further analyses. Findings We find that increased product market competition significantly reduces goodwill impairment avoidance. This effect is stronger when managers receive equity-based incentives, financing constraints are tighter and analyst coverage is greater. Additionally, product market competition acts as a substitutive governance mechanism for institutional investors and large shareholders in curbing impairment avoidance. Originality/value This study provides direct evidence supporting the governance view of product market competition. It contributes to the literature on product market competition and goodwill reporting by highlighting the disciplinary role of competition in reducing goodwill impairment avoidance.