Abstract
The treatment of goodwill in the UK has been the subject of a recent contentious Financial Reporting Standard, FRS 10. It is shown that goodwill write-off considerations appear to have an influence on the form of payment used in the acquisition, and that this influence is associated with the relative portion of the acquirer's net worth which is available for write-offs and the ratio of goodwill to target asset value. These findings are robust to controlling for factors shown to have influenced the choice of acquisition financing by Martin (1996), and to additional controls for any over-valuation of equity. The result that the accounting treatment of goodwill is associated with the financing decision in an acquisition is one that may have important policy implications for UK accounting.
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