Goodwill impairment, surplus management and company performance: Empirical evidence from Chinese a-shares

Abstract

In recent years, the capital market has generated huge amounts of goodwill assets as a result of blind mergers and acquisitions (M&A), and goodwill "thunderbolts" have become commonplace, with a significant impact on company operations and performance. To examine whether companies have used surplus management to improve the impact of goodwill impairment on company performance in the context of period-end profit losses and profit declines, this study selected a sample of non-financial listed Chinese A-share companies from 2007 - 2021 and used STATA15 to test the impact of goodwill impairment on company performance under the moderating effect of period-end profit loss and profit slip. The findings show that goodwill impairment has a significant and negative effect on company performance in the current year and the following year. However, management can use surplus management methods to significantly reduce the impact of goodwill impairment on company performance when the company experiences profit losses. The negative impact of goodwill on the company’s performance persists in the following year, regardless of whether the company experiences profit declines at the end of the period. The findings of the study validate the role of surplus management in companies with goodwill impairment under the new accounting standards and provide guidance on how to reduce the risks associated with goodwill impairment.