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Goodwill or “No-will”: Hubris in the tone at the top

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  • Runesson, Emmeli
  • Samani, Niuosha

Abstract

In this study, we examine the effect of hubris in the “tone at the top” on goodwill accounting, specifically the proportion of the purchase price allocated to goodwill following a business combination, and subsequent decisions to write down goodwill. Using a sample of CEO letters to shareholders from firms listed on the Stockholm Stock Exchange, we carry out textual analysis of CEO letters to identify hubristic language markers. Regression analyses show that hubristic tone is positively and significantly associated with the purchase price allocation to goodwill. Furthermore, we predict that hubristic managers are more likely to overestimate future cash inflows related to goodwill and are less likely to perceive the need for a potential write-down. Consistent with this prediction, we find that hubristic tone in the CEO letters is associated with less timely goodwill write-downs. This study contributes to the literature on goodwill accounting, the role of CEO attributes on corporate decision making, and to research on CEO-speak, by providing evidence that a hubristic tone at the top can explain strategic choices by management and accounting outcomes.

Suggested Citation

  • Runesson, Emmeli & Samani, Niuosha, 2023. "Goodwill or “No-will”: Hubris in the tone at the top," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(1).
    • Handle: RePEc:eee:jocaae:v:19:y:2023:i:1:s1815566922000261
    DOI: 10.1016/j.jcae.2022.100331
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    More about this item

    Keywords

    Hubristic tone; Goodwill impairment; Purchase price allocation; CEO letter; Textual analysis;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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