Is goodwill value relevant - A Danish perspective

Based on data from the Danish Stock Exchange, this paper analyses the value relevance of goodwill and goodwill amortization. Until Danish accounting legislation was changed as of January 1, 2002 companies were allowed to write-off goodwill or capitalize it subject to amortization, which provided a richer information set, as goodwill must be capitalized under most other accounting regimes. The value relevance is tested by examining the association between goodwill (goodwill amortization) and share prices (share returns), incremental to other accounting variables. The overall findings suggest that investors perceive goodwill as an asset. Though the results concerning the value relevance of goodwill amortization were inconclusive, they indicate that the value of goodwill declines over time, consequently, goodwill may be regarded as a wasted asset, which is appropriately accounted for using some amortization scheme