Did the financial crisis have an impact on Goodwill ? An analysis of the Telecommunications industry

Details

Supervisors

Stempnierwsky, Yvan

Faculty

Louvain School of Management

Degree label

Master [120] en sciences de gestion

Abstract

Over time, accountancy moved forward, bringing more reality and more reliability to financial information, with the purpose of making it understandable and trustable for everyone. Nevertheless, it is not always an easy task: sometimes, variables necessary in the valuation of an asset are simply missing. Indeed, an asset is valuated through its ability to generate future incomes over a definite time. In the case of goodwill there is no contractual terms, neither in money nor in time. Therefore its valuation is left to computation by the mean of cash flow forecast plus an estimation of perpetuity growth of the asset. The assumptions needed in the valuation of that kind of asset with an indefinite useful time are subject to economical environment changes. Through the analysis of the goodwill in the telecommunications industry, this thesis tends to determine whether or not the subprime crisis had an impact on its valuation. The results have revealed, on the one hand, that the crisis certainly had an impact. In time of recession the macro-economic variables such as the cash flow forecast, based on past experience, and therefore on pre-crisis background, do not stick to the reality of turmoil times. Moreover, the future in such a context goes hand-in-hand with the fear of recession, making the expectations of the market participants volatile, hence impacting the cost of capital used as discount factor. Concerning the growth expectations, companies used low ones, which is consistent with a time of crisis, the future being unpredictable. On the other hand, even if the financial crisis played an active role, it is certain that in the game of valuation, the players have adapted themselves by using discretion on computation and in disclosures, with the purpose of avoiding or reducing as much as possible the real impact of the crisis on goodwill.