Abstract
This study empirically examined financial analyses and a market assessment on goodwill. Goodwill is not an individually identifiable asset but is recognized as an intangible asset because it is viewed as having future economic benefits from a business combination. The verification period for this study was from 2011 to 2019. The sample companies were 13,522 firms-years satisfying the selection criteria among listed companies in the Korean stock market. As a result of empirical analysis, it was found that goodwill is related to stock prices. Goodwill was shown to serve as useful accounting information by reflecting the economic realities of intangible assets called creating excess profitability and sustainable profit. For analysis, regression analysis was conducted by separating the companies listed on the KOSPI stock market and those listed on the KOSDAQ stock market. The results of the analysis were as follows. In the case of listed companies in the KOSPI stock market, goodwill was found to have a positive (+) stock price relationship as useful accounting information. These results suggested that goodwill is an asset that represents the ability to generate excess profit as a sustainable profit. The contributions of this study are as follows. First, this study verified that goodwill is related to stock prices even after the adoption of International Financial Reporting Standards (IFRSs). Second, it will be possible to induce rational decision-making regarding goodwill to accounting standards setters, supervisors, and users of financial information. Third, it recognized that the value of the financial market can be recognized only by providing reliable accounting information to the managers who prepare financial statements. This can lead managers to provide capital markets with more useful information.
Highlights
Korea adopted the International Financial Reporting Standards (IFRSs) in 2011 to enhance accounting transparency and international consistency of accounting standards
There have been previous studies reporting that the value related to intangible asset accounting information has become lower since the adoption of IFRS
A prior study found that the impairment loss of goodwill has decreased since the adoption of IFRSs
Summary
Korea adopted the International Financial Reporting Standards (IFRSs) in 2011 to enhance accounting transparency and international consistency of accounting standards. Korean local GAAP (K-GAAP) was a rule-based accounting standard, whereas IFRS is a principles-based accounting standard. Principles-based IFRSs are standards that reflect economic substance. The IFRSs allow financial statements to be prepared that are relevant for the purpose and enable faithful expression. There is a criticism that the discretion of management may be involved in the judgment of economic substance. K-GAAP required amortization of goodwill by a straight-line method for less than 20 years. This was a mechanical depreciation, ignoring the realities of the economic benefits creation and the feasibility of economic benefits, which can vary from company to company
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