ANNOUNCEMENT EFFECTS BY INDUSTRY GROUP 197

In Table 8.2, event-period CAPEs are generally negative and statistically sig-

niﬁcant at the 1% level for the n = 27 sample of simple goodwill write-off

announcements. Simple goodwill write-off announcements lead to a relatively

large and statistically signiﬁcant stock-price reaction (event-period return)

of −2.23% (t = −2.31) using the market-model approach, −2.48% (t = −2.51)

using the mean-adjusted approach, and −2.83% (t = −2.93) using the market-

adjusted approach. On average, the stock-price reaction to simple goodwill write-

off announcements is somewhat smaller than the effect when such

announcements are accompanied by the contemporaneous disclosure of other

important information.

For n = 53 goodwill write-offs tied to the announcement of other important

information, large and statistically signiﬁcant stock-price reactions are noted using

the market-model approach (−3.30%, t = −4.48), the mean-adjusted approach

(−3.73%, t = −4.90), and the market-adjusted approach (−3.86%, t = −5.17). Table

8.2 shows that while n = 13 companies making goodwill write-off announcements

also report positive earnings, many more report operating losses (n = 21) or other

information (n = 19) regarded as negative by investors, such as the sale of a division,

corporate restructuring, plant closures, etc. For n = 13 goodwill write-off announce-

ments by companies with positive operating earnings, the stock-price reaction

appears immaterial using the market-model approach (1.82%, t = 1.69), the mean-

adjusted approach (1.76%, t = 1.61), and the market-adjusted approach (1.57%,

t = 1.46). For n = 21 goodwill write-offs announced by ﬁrms with operating losses,

large and statistically signiﬁcant stock-price reactions are noted using the market-

model approach (−6.86%, t = −4.63), the mean-adjusted approach (−7.45%,

t = −4.82), and the market-adjusted approach (−7.69%, t = −5.07). For n = 19 good-

will write-offs tied to the announcement of other miscellaneous corporate restructur-

ing information, material and statistically signiﬁcant stock-price reactions are noted

using the market-model approach (−2.91%, t = −2.91), the mean-adjusted approach

(−3.43%, t = −3.35), and the market-adjusted approach (−3.42%, t = −3.42).

These results are also important because they confirm the stock market

importance of goodwill write-off decisions, despite the fact that such

announcements are often messy in the sense of being accompanied by contem-

poraneous disclosures. Like findings reported by Docking, Hirschey, and Jones

(1997), these results suggest that investors interpret important corporate

announcements, such as goodwill write-off decisions, within the context of

other company information.

VIII. ANNOUNCEMENT EFFECTS BY INDUSTRY GROUP

Table 8.1 shows that the majority of announcements concerning goodwill write-

off decisions are made by manufacturing companies, with a signiﬁcant represen-

tation of ﬁrms from the Industrial and Commercial Machinery industry group

(SIC = 35). It therefore seems worth asking if the valuation effects described

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