Author(s)

Chenwei Sun

Corresponding Author

Chenwei Sun

ABSTRACT

“Big bath” is a subset of earnings management techniques. Previous studies demonstrate that goodwill impairment recognition can be used as a tool for big bath earnings management. Under circumstances that regulators have tightened regulation of goodwill impairment, goodwill write-downs surged, which indicates that Chinese listed firms with depressed earnings are still likely to overstate goodwill impairment losses by taking a bath. My study analyzes the representative case of Dalian Zeus Entertainment Co., Ltd. (Dalian Zeus) for the relationship between potential big bath reporting and goodwill impairment. My paper further discusses the combination of amortization and impairment test as an alternative treatment for subsequently measuring goodwill and proposes some guidance for the purpose of reducing big bath earnings management. The alternative measurement can decrease managerial discretion in impairment testing.

KEYWORDS

Earnings management; big bath; goodwill impairment; tighter regulation