executives' accounting skills and impairments

It turns out that how well executives understand accounting can make a big difference when it comes to goodwill impairment. Goodwill impairment is like when a company realizes that something it bought isn't worth as much as it thought. This study looked at companies in China from 2007 to 2022 that promised to pay their executives based on performance. It found that the smarter the executives are about accounting, the less likely it is that the company will have to write down the value of something it bought. Is that because competent executives make better decisions, or do they just hide problems?

Further digging shows that this effect is stronger when the promised payout for good performance is really high. But, when the company has equity incentives or auditors checking the goodwill impairment, this effect weakens. This tells us something interesting about how executives behave when there's a lot of money on the line. It also adds to what we know about executives and helps shape accounting standards and market supervision.

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