Review of Managerial Overconfidence and Corporate Acquisition Goodwill Impairment Research

Haiting Weng

doi:10.4236/jss.2020.81010

Abstract

In recent years, the large amount of goodwill impairment caused by high-priced mergers and acquisitions has also aroused widespread discussion. Why do companies purchase at a high premium? What effect does a high premium have on the impairment of goodwill? With the development of behavioral finance, this article uses the perspective of overconfidence in this theory, and answers the above two questions by reviewing the domestic and foreign literature. We find that the overconfidence in management tends to form the overpayment in corporate acquisitions, and the overpayment is more likely to lead to the goodwill impairment. At last, this article also proposes future research directions and I hope it can provide theoretical references for future related research.

Highlights

M & A activities have become more frequent in the domestic capital market, showing a trend of increasing scale and quantity
Why do companies purchase at a high premium? What effect does a high premium have on the impairment of goodwill? With the development of behavioral finance, this article uses the perspective of overconfidence in this theory, and answers the above two questions by reviewing the domestic and foreign literature
We find that the overconfidence in management tends to form the overpayment in corporate acquisitions, and the overpayment is more likely to lead to the goodwill impairment

Summary

Introduction

M & A activities have become more frequent in the domestic capital market, showing a trend of increasing scale and quantity. From 2014 to 2017, actual amount of goodwill impairment losses in the A-share market were 3.228 billion yuan, 7.766 billion yuan, 11.419 billion yuan, and 36.486 billion yuan, accounting for 0.13%, 0.31%, 0.42%, and 1.10% of the net profit in the same period This article summarizes and reviews two aspects of researches, which are managerial overconfidence and M & A activities, goodwill impairment and M & A premiums. This dynamically links the chains before and after M & A. That means that the managerial overconfidence affects M & A decisions, and high merger and acquisition premiums resulting from M & A decisions are prone to lead to goodwill impairment

Literature Review

Summary

Research Significance

Deficiencies in Existing Research

Findings

Possible Future Research Directions