How does economic policy uncertainty influence the timeliness of goodwill impairment? ─ Australian evidence

This thesis investigates the effect of economic policy uncertainty (EPU) on the timeliness of goodwill impairment of Australian listed firms from 2006 to 2019. Using the EPU index developed by Baker, Bloom, and Davis (2016), this thesis builds a multivariate logistic regression model to estimate the effect of EPU on the timeliness of corporate goodwill impairment. The analyses show that EPU attenuates the timeliness of goodwill impairment, and this attenuating effect is robust to different model specifications. The thesis then employs cross-sectional analyses to examine whether the attenuating effect of EPU varies with firms’ life cycle, firms’ severity of financial constraints, and the geographic location of firms’ headquarters. The results reveal that the negative effect of EPU is driven by mature firms, firms with severe financial constraints, and firms located in small states of Australia. Against the backdrop of a gubernatorial election triggering economic policy-related uncertainty, the thesis conducts a difference-in-differences test, and the results corroborate the main finding. The thesis also performs a Two-Stage Least Square regression test to alleviate the concerns about potential endogeneity due to omitted variables. Furthermore, to alleviate the concern about measurement errors, the thesis adopts a two-step regression approach to remove other non-policy-related factors from the original EPU measure and uses the residuals of the estimation as an alternative measure of EPU for a sensitivity test. The main results are also robust to a battery of additional sensitivity tests, such as controlling for business cycles and other macroeconomic confounding factors in the regression analysis and using the Australian federal government election as a parsimonious measure of EPU.