Goodwill Impairment Research Articles

Semantic Web-Based Prediction Method for Goodwill Impairment in Listed Companies Using Mamba

In the context of globalization and intense market competition, mergers and acquisitions (M&A) have become a common strategy for enterprises to expand and transform. However, goodwill issues in M&A are increasingly concerning. Traditional goodwill impairment prediction models face drawbacks like reliance on precise predictions, large datasets, complexity, poor interpretability, high computational costs, and data acquisition difficulties. This paper proposes a prediction model based on an improved Mamba algorithm. By processing financial data from listed companies in the CSMAR database, the model constructs lagged and rolling statistical features to reflect performance trends. The Mamba algorithm dynamically adjusts input parameters through a Selective State-Space Model (SSM), capturing dependencies in long-sequence data and improving prediction accuracy and timeliness. Experimental results show the Mamba algorithm excels in handling long-sequence data, offering valuable guidance for financial management and risk control.

Goodwill Impairment and Future Cash Flows Under Japanese GAAP and IFRS

Goodwill Impairment and Future Cash Flows Under Japanese GAAP and IFRS

Related party M&A, goodwill impairment and stock price crash risk: Evidence from Chinese capital market

This article takes A-share market M&A cases from 2010 to 2022 as samples to investigate the influence mechanism of related M&A, goodwill impairment and the risk of the stock price crash, and the differences of the above effects in different industries. The study finds that related M&A presents a higher premium rate in the asset-light industry, which deepens the risk of goodwill impairment and brings a greater stock price crash risk. Further research shows that frequent related M&A behavior deepen the positive correlation between goodwill impairment and stock price crash risk. The enhancement effect is pronounced in the asset-light industry. This paper deepens the comprehensive understanding of related M&A and enriches the related research on goodwill impairment, which makes it specific reference value to small and medium investors.

A Study on the Causes of Goodwill Impairment in the Mergers and Acquisitions of Listed Companies: Taking Xunyou Technology as an Example

A Study on the Causes of Goodwill Impairment in the Mergers and Acquisitions of Listed Companies: Taking Xunyou Technology as an Example

The impact of industry competition on the value relevance of goodwill impairments across different information environments

Building upon prior studies that explore the impact of competition on financial reporting quality, this paper investigates the influence of industry-level competition on the value relevance of goodwill impairments. Additionally, it examines whether this impact is more pronounced for firms operating in countries with rich information environments. We analyze 21,224 firm-year observations from companies in 21 countries that reported under International Financial Reporting Standards (IFRS). We find that companies facing higher product market competition tend to report impairment losses that are relevant to investors’ equity valuation decisions. This is consistent with the notion that companies in competitive industries are subject to greater scrutiny and have fewer incentives to manipulate their impairment reporting. We also find that the impact of industry competition on the value relevance of goodwill impairments is more pronounced in the rich information environments of market-based economies than bank-oriented economies. These findings underscore the impact of competition and its interplay with the information environment on the market perception of accounting information that is subject to managerial discretion.

Analysing the Motivation and Effect of Cross-border Mergers and Acquisitions: A Case Study of the Acquisition of YOUJIUSHIDAI by SHANGHAI ACE CO., LTD.

Under the background of globalisation and information technology revolution, cross-border mergers and acquisitions (M&A) have become a key strategy for corporate strategic transformation and market expansion. Taking the acquisition of YOUJIUSHIDAI by SACE as an example, this study adopts the methods of literature review, case study analysis and AMPS model to explore in depth the motives, effects and impacts of cross-border M&A on corporate performance. This study finds that although M&A enhances shareholder wealth in the short term, long-term profitability falls short of expectations, which is mainly limited by the lack of R&D capability and market alignment problems. This study emphasises the importance of synergies and points out that high-premium M&As may lead to goodwill impairment risk, thus affecting the financial status of the firms and the interests of shareholders, and puts forward suggestions to optimise M&A strategies and strengthen regulation, in order to protect the interests of small and medium-sized investors and to promote the healthy development of the capital market.

Corporate Mergers and Acquisitions & Goodwill Impairment: A Literature Review

In recent years, the landscape of corporate strategies has witnessed a notable shift, propelled by the burgeoning trend of marketization and bolstered by the supportive framework of China's national economic policies. Listed companies are increasingly leveraging mergers and acquisitions (M&A) and restructuring initiatives to propel the expansion of their business operations and fortify their core competitiveness. However, amid this strategic fervor, the looming risk of substantial goodwill impairment stemming from M&A and restructuring endeavors emerges as a pivotal factor, casting a shadow on market stability. This article delves into an extensive examination by amalgamating existing literature on M&A and goodwill impairment studies. It aims to elucidate the root causes behind M&A goodwill impairment and shed light on the economic repercussions associated with such impairments, drawing insights from M&A and goodwill-related concepts and theories. Building upon the foundation of contemporary academic research, the article conducts a thorough exploration into the intricacies of M&A goodwill impairment, culminating in actionable suggestions pertaining to corporate M&A practices and the imperative prevention of goodwill impairment.

A review of research performed on the approach to the subsequent measurement of goodwill

Orientation: By taking stock of goodwill accounting literature, the article identifies key themes and highlights the lack of innovation in goodwill and intangibles’ accounting evolution.Research purpose: This article suggests pure grounded theory research is required to develop a novel perspective on goodwill accounting.Motivation for the study: Little progress has been made to overcome the dated issues related to goodwill impairment necessitating a genuinely fresh approach.Research approach/design and method: A search was performed on the Scopus Database and all sources containing a combination of ‘goodwill’ and ‘impairment’, ‘amortisation’ or ‘depreciation’ in the title, abstract or keywords were extracted. A total of 231 sources from 1990 to 2022 are analysed. These are coded with the support of a content analysis and a bibliometric analysis.Main findings: This research identifies the dominance of positivist quantitative research and financial economics as a key issue that may be holding back progress on the subsequent treatment of goodwill. The research iterates three core issues, namely: (1) that the impairment-only approach allows too much managerial discretion, (2) an inability to reasonably estimate the useful life of goodwill deters many from supporting goodwill amortisation and (3) sometimes goodwill may be a wasting asset while others may genuinely have an indefinite useful life.Practical/managerial implications: This research may be relevant for standard setters when considering goodwill accounting methods.Contribution/value-add: The research provides insights into existing literature and highlights areas for future accounting research.

Extending air-cooled data center emergency cooling duration with phase change material: An experimental study

Data center failure due to power outage can lead to huge economic losses and goodwill impairment. In this research an attempt has been made to extend emergency cooling duration under different power outage scenarios: a complete power outage, an outage affecting the chiller-side while the air handling unit remained operational, and an outage targeting the chiller. The study experimentally focused on temperature variations at the inlet and outlet of a specific 42U cabinet. The results showed that during a complete power outage, there was a significant temperature rise, with the highest recorded inlet temperature in the cabinet reaching 34 °C. In the scenario where only the air handling unit is operated without the chilled water pump, inadequate heat exchange led to a rise in the returning hot air, with a maximum inlet temperature of 30.5 °C. However, in a chiller-targeted outage, the pump circulated chilled water in a cold-water storage, resulting in improved heat exchange and an inlet temperature of only 19.4 °C. Furthermore, the study explored using a fin-and-tube heat exchanger containing PureTemp27 as a phase change material (PCM) to extend emergency cooling time. When the fan supply voltage is 7V, the findings showed an approximate 8-min extension with a heat load of 5 kW and a 5-min extension with a heat load of 7.5 kW. Increasing the fan supply voltage to 12 V showed no significant difference. This research provides valuable insights into applying PCM during emergencies in data centers.

Measuring the Quality of Mergers and Acquisitions

We develop a measure of merger and acquisition (M&A) quality using accounting theory. This measure, implied return-on-equity improvement (IRI), quantifies the minimum improvement in the target’s post-acquisition return on equity (ROE) the acquirer must attain to break even on the acquisition price. Employing a large sample of M&As from 1980 to 2018, we find that a high IRI is, on average, less attainable ex post and predicts worse acquirer financial performance. The acquirer’s ROE growth over the first three years after the M&A is 11 percentage points lower for high-IRI M&As compared with low-IRI M&As. Worse high-IRI acquirer performance is observable through higher operating costs, tighter financial constraints, lower investments, and larger and more frequent goodwill impairments. We also find that IRI increases with acquiring chief executive officers’ overconfidence, incentive misalignment, and difficulty in estimating synergies; IRI decreases with acquirers’ financial discipline and due diligence effort. As such, overestimating synergies and managerial incentives that drive overpayment are potential mechanisms underlying IRI’s negative association with acquirers’ post-M&A performance. This paper was accepted by Eric So, accounting. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.01225 .

Does ESG help reduce the goodwill impairment?—From perspectives of information increment and information manipulation

An increase in mergers and acquisitions (M&A) leads to a significant increase in the total amount of goodwill in the capital market. However, from time to time, significant goodwill impairment has occurred due to less-than-expected M&A performance. Based on the data of Chinese A-share listed companies from 2011 to 2022, this paper examines the relationship between ESG and goodwill impairment. The findings suggest that ESG performance can provide stakeholders with incremental information, which, in turn, reduces the magnitude of goodwill impairment. However, the resources occupied by the fulfilment of ESG responsibilities crowd out the resources for M&A integration, affecting M&A performance, thereby increasing the possibility of goodwill impairment. In other words, the impact of ESG on goodwill impairment is a balance between positive and negative effects. We also find that the manipulation of ESG disclosures could be an approach to earnings management.

Do Investors Underestimate the Risk of Asset Bubbles? ——Evidence from the Goodwill Bubbles of Chinese Listed Companies

ABSTRACT We investigate the extent of investors’ awareness of the bubble risk of assets’ fundamental value by examining Chinese listed companies’ goodwill bubbles. We find that firms with larger goodwill have a higher possibility of goodwill impairment recognition in the future, indicating a higher bubble risk of companies’ assets fundamental. Next, we find that firms with more goodwill experience lower stock returns in subsequent 1–3 years, which means investors do not demand corresponding risk compensation and underestimate the goodwill bubble risk for these firms. Furthermore, we investigate five behavioral biases driving investors to underestimate the bubble risk. The results show that investors’ gambling preference for bubble assets is the key driver, while investors limited attention, extrapolation, opinion divergence, and earnings expectation are not applicable in our setting. Our study suggests that investors’ gambling preference is a channel through which the risk of companies’ assets fundamental bubble transmits to the stock market.

Assessing Audit Risks in Enterprises on the Growth Enterprise Market: A Grounded Theory Approach

This paper adopts the research method of grounded theory, based on the annual report audit of 66 pharmaceutical manufacturing enterprises on the Growth Enterprise Market, exchange supervision and inquiry letters, the CSRC penalty announcement and online public comment materials, and based on the actual situation, to study the audit risk of pharmaceutical enterprises on the Growth Enterprise Market. . The study found that the misstatement risk of pharmaceutical companies on the GEM is divided into the overall level and the specific level. Among them, the overall misstatement is related to the external environment, operating risks, corporate governance, internal control, and related party transactions, while the specific misstatement risks are reflected in revenue recognition, goodwill impairment, R&D expense recognition, inventory valuation, and the availability of accounts receivable. Recoverability and other five aspects. In the context of big data, construct appropriate risk profiles analytical models are critical to the efficiency and quality of audit oversight. Through the research of this paper, it is helpful to assist intermediaries and regulatory authorities to systematically assess the misstatement risk of pharmaceutical companies on the GEM, and to take targeted risk response measures.

Power needs knowledge: CEO knowledge background and goodwill impairment

ABSTRACT We investigate whether and how CEO knowledge background affects goodwill impairment and whether it mitigates investors’ risk assessment of goodwill impairment. We employ CEOs’ educational, financial, and overseas backgrounds to represent their knowledge background. The results, based on a sample of Chinese firms, show that CEOs with a higher level of knowledge background are more likely to test and record a goodwill impairment in a timely manner. In addition, we find that the negative effect of goodwill impairment on abnormal stock returns exists only in firms whose CEOs have a weaker knowledge background. The results of our cross-sectional tests and additional analyses are consistent with our main inference that a higher level of CEO knowledge background facilitates a deeper understanding of goodwill, which mitigates cognitive bias and thereby increases CEOs’ willingness to record a goodwill impairment in a timely manner and ensure investors’ trust.

Does Goodwill-Related Critical Audit Matters Disclosure Influence Firms’ Financial Reporting Decisions? Evidence from Goodwill Impairment

SUMMARY We investigate whether the new critical audit matters (CAMs) disclosure requirement for auditors under the PCAOB Standard AS 3101 affects audited firms’ financial reporting decisions in the context of goodwill impairment recognition. We argue that an auditor's intense engagement with management and the audit committee in the CAMs determination and evaluation process improves management's information sets. Specifically, we report that the propensity to recognize goodwill impairment loss increases for firms with goodwill-related CAM disclosure relative to those without. This result is more pronounced when the likelihood of expected impairment is higher, suggesting that CAMs reporting lowers managers’ discretion in delaying impairment loss recognition. Additionally, we find that goodwill-related CAM disclosure increases the length and use of uncertain words in goodwill-related footnote disclosure by management but has no significant impact on audit costs. Overall, these findings suggest that adopting CAMs requirements can reduce management's discretion in financial reporting decisions. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M41; M42.

Common Ownership and Goodwill Impairments

ABSTRACTResearch Question/IssueAre companies monitored by common owners (i.e., institutional investors that block‐own [owning 5% or more] several companies in a single industry) more likely than other companies to record goodwill impairments when their assets are overstated?Research Findings/InsightsWe find that companies monitored by common owners are more likely than other companies to record goodwill impairments when their assets are overstated. The monitoring effect is stronger for common owners with a stronger incentive to monitor and with more industry knowledge and stronger for the co‐presence of multiple common owners. Our findings are in line with the notion that common owners have an economy of scale in monitoring and internalize the negative externality of delayed recording of goodwill impairment. We also find that common ownership is associated with lower information asymmetry, which in turn increases the timeliness of goodwill impairment.Theoretical/Academic ImplicationsOur research emphasizes the monitoring role of common ownership in recording goodwill impairments. We find support for the mechanisms enabling common owners to be better monitors.Practitioner/Policy ImplicationsThe prevalence of common ownership has prompted regulatory and societal concerns regarding under‐investment in the oversight of the companies. Our findings documenting the association between common ownership and the timely recording of goodwill impairments are relevant to the ongoing debate regarding the potential costs and benefits of common ownership.

Multiple large shareholders and M&A quality: evidence from China

ABSTRACT This study investigates the influence of the presence of multiple large shareholders (MLS) on the quality of mergers and acquisitions (M&A). Using data from the Chinese market, we find that the presence of MLS in acquiring firms is associated with a higher level of goodwill impairment in the three-year period following the completion of an M&A transaction, relative to firms devoid of such shareholder structures. The further analysis suggests that the identity of these shareholders is crucial; specifically, when the second-largest shareholder is identical to the controlling shareholder, the adverse effects on goodwill valuation are more significant. This relationship is mitigated when the identities of the controlling and the second-largest shareholders differ. The impact is particularly noticeable in transactions involving commitment performance contracts, related party transactions, and in sectors characterized by high goodwill valuations. This study contributes to the literature on the economic outcomes associated with MLS structures in China, a context marked by the prevalence of such ownership arrangements and limited minority shareholder protections.

The impact of key audit matters on goodwill accounting and investment behavior: Evidence from China

This study investigates whether key audit matters (KAMs) in audit reports impact accounting for goodwill impairment and investors' decision-making. Using a matching-based difference-in-difference estimator, this study finds that small audit firms fail to compel managers to promptly impair goodwill but cause further price distortion from goodwill inflation under the KAM reporting model. Additionally, negative press coverage improves the effectiveness of KAMs disclosed by small audit firms in goodwill accounting. Finally, KAMs disclosed by small audit firms will only mislead non-professional investors. This study extends the existing research on the association between audit reports, specific reporting quality, and resource allocation in the capital market.

A Path Analysis of Goodwill Impairment – Does Corporate Governance Matter?

Abstract Objective This paper examines the extent to which different corporate governance mechanisms affect the recognition and measurement of goodwill impairment, considering that these decisions are affected by a complex set of factors such as variables associated with corporate governance, economic/financial variables, and the market. Methodology We used data from 110 companies, both Spanish (75) and Portuguese (35), with listed securities, in the period 2010–2016 (unbalanced panel), and the path analysis method to infer financial and non-financial data relationships. Findings The results support the hypothesis that attributes linked to management and internal and external control mechanisms, as well as economic/financial, market and location variables, are directly and indirectly associated with the recognition of goodwill impairment. Value Added This paper outlines a company behavioral profile where opportunity seems to prevail over timely recognition and measurement of goodwill impairment. Big bath practices appear to be well founded, as well as the alignment of this strategy with market signals. Recommendations To foster the adoption of accounting practices close to the interests of all stakeholders, regulators should be encouraged to incentivize corporate governance models that promote the periodic rotation of the chief executive officer/chairman, the independence of all members of the statutory audit board, and training in economic and financial areas.

Novice Auditors and Audits of Fair Values: Knowledge and Skill Requirements*

AbstractNovice auditors are increasingly being asked to perform tasks that were not expected of them in the past, including evaluation of fair values (FVs). This study contributes to the auditing literature by investigating novice auditors' competencies required for correct performance of FV auditing tasks, identifying weaknesses, and suggesting actions that could be taken by educators and practitioners to address those weaknesses. Using the audit of goodwill impairment under IFRS as the exemplar task for identifying FV auditing competencies, we create a normative process table for the task based on accounting and auditing standards and authoritative valuation literature. We analyze the verbal protocols of novice auditors while they perform the task and compare their processes to the normative table to understand weaknesses in their competencies. Our findings are of interest to auditing educators and audit firm personnel responsible for staff training programs, audit program development (e.g., checklists), supervision, and review.