Does IFRS Adoption Accelerate M&A? The Consequences of Different Goodwill Accounting in Japan

Abstract

This study investigates how the gap in goodwill accounting between the Japanese local accounting standards (Japanese Generally Accepted Accounting Principles) and international accounting standards (International Financial Reporting Standards) is related to the likelihood of firms adopting international accounting standards and the merger and acquisition transactions that result. We first investigate whether the adoption of international accounting standards is associated with the past merger and acquisition activities of adopters and their goodwill ratio. Second, to control for possible self-selection bias arising from the firms’ incentives for adopting international accounting standards, we use propensity score matching to select control firms that use Japanese local accounting standards and have a similar probability of adoption of international accounting standards. Third, we examine whether there is any difference in the number of merger and acquisition transactions, as well as the goodwill ratio, between the period before, and after, the adoption of international accounting standards. We show that firms that are actively involved in merger and acquisition transactions have a higher probability of voluntary adoption of international accounting standards than those following Japanese local ones. Further, adopters of international accounting standards experience a bigger rise in the number of merger and acquisition transactions than those adopting local ones. While the goodwill ratio in adopters of international accounting standards is higher than that for adopters of Japanese local accounting standards, there is no evidence that the former increase the goodwill ratio after the adoption.