Goodwill Disclosures and Governance: Evidence from Belgian Companies

The general purpose of this paper is to examine how corporate governance mechanisms affect a firm’s disclosure behaviour. Through content analysis of annual reports published by Belgian firms listed on Euronext Brussels, we determine a relative disclosure score as a measure of the quality of information delivered on goodwill impairment test in accordance with the IAS 36 (Revised 2004, §§ 134-135). The obtained score is then related to three corporate governance variables (independent directors, audit committee and external auditor) and two control variables (size of the reporting firm and goodwill amount). Both year-by-year regression and fixed-effects regression are used to evidence the determinants of firms’ disclosure scores. We observed that the quality of disclosure on goodwill impairment test is positively and significantly influenced by the size of the audit firm, the relative size of audit committee and the proportion of goodwill amount to total assets. We present recommendations to enhance corporate governance mechanisms and match them with the complexity of conducting and reporting on the goodwill impairment test.