A recent article from McKinsey & Company examined investor reaction to news of a goodwill impairment. Through analysis of excess returns in the three days before and after announcement, McKinsey found that investors often respond positively, or neutrally, when companies announce a goodwill write-down. Why wouldn’t investors react more negatively? The authors suggest that when investors already understand that an acquisition has been underperforming, the impairment charge may be perceived as an event that communicates acknowledgment on the part of management as well as an opportunity to charge course. The article goes on to encourage companies to be candid with investors about the nature of the impairment and the company’s plans to address the situation and move forward.
