Determinants of the Accounting Choice of Goodwill in Unlisted Firms: Evidence from Sweden

Abstract: Background and research problem: The area of accounting choice has been frequently studied on listed firms, however little attention has been directed towards unlisted firms. Hence, it is unclear how the results from previous studies apply to unlisted firms. In addition, the transition to the new K3 framework implies effects on the goodwill asset in Swedish unlisted firms since the longest allowed amortization period is being reduced from 20 to 10 years. Purpose: The primary purpose of this study is to address the determinants behind the accounting choice regarding goodwill in unlisted Swedish firms prior to the transition to the K3 framework. In order to enhance the understanding and the interpretation of the primary purpose, a complementary purpose is included, which consists of studying how banks view the goodwill accounting regulation in RR 1:00 compared to K3 in their credit assessment. Method: A quantitative study is carried out, using data from consolidated financial statements of Swedish unlisted firms for the fiscal year of 2013. The quantitative approach is complemented with a qualitative approach, consisting of three interviews with respondents from three Swedish banks. Empirical findings: The results from this study indicate that accounting choice in unlisted firms is affected by specific determinants and that these determinants differ between listed and unlisted firms. Financial leverage does not have a statistically significant impact on the amortization period for goodwill among Swedish unlisted firms. However, firm size is shown to have a significant impact on the amortization period for goodwill. Moreover, the study finds significant results of firms in high-tech industries applying shorter amortization periods for goodwill, which is the opposite of what was expected. The findings from the quantitative approach are further supported and interpreted by insights gained from the qualitative approach. Suggestions for further research: Since accounting choice in unlisted firms is a fairly unexplored research area, one suggestion for further research is to study the accounting choice of unlisted firms within other areas than goodwill accounting. Another suggestion is to further study the impact of industries on accounting choice. At last, it would be interesting to study if the transition to K3 will lead to an increased voluntary adoption of IFRS and if so, what the incentives for this might be.