Recognition Of Goodwill Research Articles

Research on Enterprise Combination Accounting

With the development of the global economy and the intensification of competition, corporate mergers have become an important trend in the development of modern enterprises, and accounting, as an important part of enterprise management, has received wide attention. In China, corporate mergers adopt the purchase method and the equity combination method. This paper first compares the purchase method and the equity combination method through literature analysis, and secondly analyzes the financial status and operating results of corporate mergers under the two methods of accounting, and further proposes that the imperfect capital markets system and unreasonable goodwill recognition measurement process have an adverse impact on the accounting under the purchase method, and points out the decline in the quality of accounting information and the possible profit manipulation space under the equity combination method. This paper finds that goodwill is the main reason for the difference between the purchase method and the equity combination method, and for the asset scale and net profit of the merged enterprise, the results calculated by the purchase method are greater than the results calculated by the equity combination method.

Goodwill reporting in corporate acquisitions: The effects of managerial discretion under the new accounting rules

Goodwill is a critical issue in the accounting of corporate restructuring activities in terms of both purchase price allocation in corporate acquisitions and the subsequent write-downs. Although the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) new accounting standards provide a reference point for goodwill recognition, the complexity of fair value adjustments and the extensive subjectivity involved in assessing goodwill still make its allocation and the impairment-only approach limitedly transparent. Therefore, this study explores the impact of IFRS 3 (International Financial Reporting Standard 3) on management discretion in goodwill reporting. From a methodological standpoint, the hypotheses are tested on a sample of 68 acquisitions executed by Italian-listed acquirers in the 2012–2020 period. Our results confirm the potential for managerial opportunistic behavior in light of the signaling role of goodwill for investors.

Recognition of provisional goodwill: Real need or communication strategy?

This study draws attention to the recognition of goodwill on a provisional basis, as allowed by International Financial Reporting Standard (IFRS) 3,“Business combinations”. We examine whether the provisional goodwill choice is motivated by market imperfections rather than the actual difficulty in the estimation of acquired assets and liabilities. We analyze a sample of business combinations concluded over the period 2014–2015 involving European companies and accounted for according to IFRS 3. Our findings suggest that the decision to account for goodwill on a provisional basis is due to the specific timing of the acquisition. In addition, the coexistence of stock market overvaluation and strong investor protection at the time of the merger and acquisition (M&A) announcement is a significant determinant of the provisional goodwill choice. Therefore, this study contributes to the current debate on accounting for goodwill as it highlights the relevance of the factors affecting the initial determination of the goodwill amount.

Intangible Assets, Goodwill and Earnings Management: Evidence from France and the Uk

Abstract Research background: The literature has argued that accounting for intangible assets and goodwill provides a wide range for managers to manipulate earnings. Purpose: This paper aims to investigate the impact of accounting treatment of intangible assets and goodwill on earnings management. Research methodology: The study included 115 French companies and 100 UK companies, during 2011–2019, employing multiple regression, where earnings management was measured through discretionary accruals; while accounting for intangibles and goodwill was divided into the capitalization and decapitalization of intangible assets, recognition and derecognition of goodwill, and depreciation and impairment of intangible assets and goodwill. Results: According to the results, accounting for intangible assets and goodwill has an impact on earnings management, while it is used differently between French and UK companies. In France, companies employ intangible assets capitalization to manipulate earnings, while UK companies use intangible assets capitalization and goodwill recognition. Novelty: This study provides supplementary evidence for standards setters, managers, and auditors about the contribution of accounting for intangible assets and goodwill in the quality of financial reporting and explores the new tools and practices of earnings management.

The Impact of Goodwill Recognition and Goodwill Impairment on the Increasing Holdings of Block Shareholders

There is a large amount of goodwill recognition and goodwill impairment. These characteristics would trigger stock price fluctuation. Hence, stakeholders will increase holdings to mitigate the volatility of stock prices. According to the data in regard to the Chinese A-share nonfinancial listed companies from 2007 to 2020, we study the reaction of block shareholders after goodwill recognition and goodwill impairment, respectively. Our findings are as follows: (1) goodwill recognition leads to increasing holdings of block shareholders; (2) goodwill impairment also leads to increasing holdings of block shareholders when there is a large amount of goodwill impairment. We also take state ownership into consideration: compared to state-owned firms, private firms show a much stronger positive relation between goodwill recognition and level of increasing holdings of block shareholders, but there is no significant relation between goodwill impairment and increasing holdings of block shareholders in state-owned firms. These empirical results provide us with abundant evidence that block shareholders would increase shareholdings when there is goodwill recognition due to private information of positive future expectation in M&A. Meanwhile, block shareholders would stabilize stock price via increasing shareholdings when goodwill is impaired.

Теоретическая обоснованность бухгалтерского учета гудвилла

The article analyzes the modern accounting practice of reflecting goodwill in the system of accounting accounts. As a scientific approach to solving this problem, the author uses an interdisciplinary approach, within which various aspects are used as a toolkit for solving the indicated problem. Based on the results of research on the theory and practice of corporate management, the author comes to the conclusion that the interpretation of the economic nature of goodwill is ambiguous, and, as a consequence, of its incorrect accounting. The identification and recognition of goodwill in the accounting (financial) statements as an asset is questioned.

Bubble of Goodwill -- A Brief Analysis of the Problems of Measurement of Goodwill

The development of economic globalization and the intensification of competition have set off a new round of merger and acquisition boom in China, and at the same time brought the phenomenon of double high goodwill recognition and impairment loss of listed companies. From this background, this paper briefly analyzes the problems existing in the measurement of goodwill in China from two aspects: the initial recognition of goodwill and the measurement of goodwill impairment. In the initial recognition of goodwill, there are some problems in the recognition method and scope. In the measurement of goodwill impairment, there are some problems about how to measure and count the impairment loss. The countermeasures and Suggestions for the initial recognition of goodwill and the measurement of impairment were proposed.

Peer effect in the initial recognition of goodwill

This study investigates the peer effect in the initial recognition of goodwill. We find that firms imitate their peers in the initial recognition of goodwill. The higher the tendency for imitation, the higher the proportion of goodwill recognized. Imitation behavior in the initial recognition of goodwill cannot be explained by information acquisition or rivalry motivations. Instead, we find evidence that managers’ opportunistic motivations explain the peer effect in the initial recognition of goodwill and the overestimation of goodwill arising from imitation tendencies. Executive overconfidence weakens the peer effect but exacerbates the overestimation of goodwill caused by imitation tendencies. Finally, the higher the imitation tendency, the greater the probability and amount of goodwill impairment in the future. This further confirms that the peer effect leads to overestimation of goodwill. The findings of this study enrich the literature on goodwill and provide insightful empirical evidence for regulating goodwill accounting. The results show that the conservatism principle should be reinforced in the initial recognition of goodwill.

Determinants of initial goodwill overstatement in affiliated and non‐affiliated mergers

AbstractThis study examines the determinants of goodwill overstatement at the time of mergers in a Korean setting. In the Korean M&A market, there are two types of mergers: mergers between independent companies (non‐affiliated mergers) and mergers between companies under common control (affiliated mergers). This study extends the literature by examining the factors likely to cause goodwill overstatement in both types of mergers. The results reveal that in affiliated mergers, goodwill at the time of a merger tends to be overstated when controlling owners have higher equity ownership in the target than in the acquirer. By contrast, information uncertainty in the target value causes initial goodwill overstatement in non‐affiliated mergers. We also find that monitoring of independent institutional investors with concentrated holdings against overpaying for the target is more pronounced when controlling owners in affiliated mergers have incentives to overpay for the target. In affiliated mergers, acquirers tend to write off goodwill more frequently when controlling owners have higher equity ownership in the target than in the acquirer. In non‐affiliated mergers, information uncertainty in the target value is significantly associated with subsequent goodwill write‐offs. These results suggest that the type of merger has important consequences for initial goodwill recognition and subsequent impairment.

An Empirical Examination of Accounting Comparability: Goodwill Recognition and Disclosure in Selected Central European Countries

Over the last few decades, there have been unusually frequent changes in the required accounting rules and methods for measuring and reporting positive and negative goodwill of business entities and capital groups. We suggest that the lack of consistent accounting regulations among Central Eastern European countries in accounting for positive and negative goodwill distorts the economic content of this very important economic resource and therefore its usefulness for decision making is adversely affected. The aim of this study is to investigate accounting regulations for goodwill in Poland, the Czech Republic, and Slovakia. To achieve this goal, a critical analysis of the literature is conducted, and the applicable legal regulations are analysed. An empirical case study regarding goodwill recognition, measurement, and disclosure is presented based on data received from an actual acquisition transaction. Since the three countries studied are neighbours and cross-country acquisitions are important instruments for regional economic development, we issue a call for regional harmonization of local accounting regulations, preferably based on International Financial Reporting Standards (IFRS).

Reviewing IFRS Goodwill Accounting Research: Implementation Effects and Cross-Country Differences

We review 42 studies from 2008 to early 2017 about IFRS goodwill accounting choices for recognition, impairment, and disclosure of goodwill, focusing on cross-country evidence of implementation effects. We develop a model of application of goodwill accounting based on IFRS 3, IAS 36, and country- and firm-level influences to analyze the research and to summarize existing evidence about goodwill accounting choices. We report evidence in support of IFRS accounting for goodwill recognition, impairment, and disclosure from many countries. However, evidence regarding value relevance is mixed. Overall, there is a lack of cross-country evidence regarding factors affecting goodwill accounting. Many studies show goodwill recognition, impairment, and disclosure are associated with economic and firm factors, and there is some evidence about the impact of managerial incentives and a lack of timeliness in impairment recognition. There is scope for more cross-country studies showing how institutional factors affect the application of IFRS 3 and IAS 36.

CEO Equity-Based Compensation and Goodwill Recognition Using the Purchase Price Allocation Setting

This study examines the relationship between CEO equity based compensation and the amount recognized as goodwill from mergers and acquisitions. CEO stock options grants and options exercised has been chosen to represent the different forms of equity based compensation. Also, the study investigates the effect of CEO characteristics such as gender, age and tenure on goodwill recognition. The researcher uses a sample of 108 public U.S business combinations completed in the service sector between 2002 and 2015. Results of the study indicates that there is no direct relationship between stock option grants and goodwill but CEOs with higher stock options grants in their compensation package recognize more goodwill only if the acquirer stock prices are high. Also, CEOs with higher options exercised in the acquisition announcement year, recognize more goodwill and this relationship becomes stronger when CEO has long tenure. Also, the researcher finds negative relationship between higher representation of CEO male and goodwill recognition الملخص: يهدف هذا البحث الي قياس أثر حوافز المديرين التنفيذين و وبالأخص الحوافز المبنية علي ألاسهم على تحديد قيمة الشهرة بعد الاستحواذ. من أجل تحقيق هذا الهدف سيم اختبار بعض الفروض ، وهي، توجد علاقة ايجابية مباشرة بين علاوة المديرين التنفيذين (خيارات الأسهم) و قيمة الشهرة بعد الاستحواذ، توجد علاقة ايجابية بين خيارات الأسهم و قيمة الشهرة بعد الاستحواذ اذا کان المدير ذو خبرة، توجد علاقة ايجابية بين خيارات الأسهم و قيمة الشهرة بعد الاستحواذ في حال أسعار اسهم الشرکة المستحوذة، يتلاعب المديرين الذکور في رقم الشهرة اکثر من مثيلهم من الإناث. و يعتمد هذا البحث في التحليل على البيانات الثانوية و بصفة أساسية على القوائم المالية للشرکات الأمريکية العامة المسجلة بالبورصة. کما يعتمد بصورة رئيسية على وضع توزيع سعر الشراء(Purchase Price Allocation ) لدراسة النتائج المحاسبية لهذا البحث لأسبادب عديدة. أولا: ان تحديد أسعار الشراء المبني على القيمة العادلة هو موضوع مثير للأهمية في الآونة الاخيرة. ثانيا: يعتبر الاستحواذ من القرارات المميزة الخاصة بالأعمال ذات التأثير طويل المدى على التقارير المالية. وکنتيجة لميزتها الإقتصادية فإن توزيع سعر الشراء يعتبر أداة قوية لتحديد تأثير العوامل المختلفة المؤثرة على التقرير. و يعتبر هذا البحث مهم من الناحية الأکاديمية حيثحداثة الموضوع و قلة الأبحاث و الدراسات التى تناولت هذا الموضوع،اضافة الى التحديات المتعلقة بعقود المکافات الت تواجه الشرکات خاصة بعد الاستحواذ, مما ألقى العبء على المجال الأکاديمى بضرورة تناول هذا الموضوع و ذلک سعيا لتطوير عقود المکافات و زيادة جودة التقارير المالية. و تعد الأهمية الأخرى لهذه الدراسة هي الأهمية العملية والتي تتضح من خلال الدور الذي تلعبه القيمة العادلة بعد عملية الاستحواذ و لذلک تتمثل أهمية هذا البحث فى ضرورة اجراء دراسة ميدانية لتحليل أثر مکافآت المديرين التنفيذين على دقة تحديد القيمة العادلة لأصول الشرکة بعد الاستحواذ. في سبيل تحقيق کل من الأهداف الرئيسية و الأهداف الفرعية لهذه الدراسة و اختبار مدى صحة الفروض الموضوعة ، تم تقسيم البحث إلى عدة مباحث و هي؛ المقدمة والدراسات السابقة، صياغة الفروض، منهجية البحث، نتائجالدراسة التطبيقية، و أخيرا النتائج والتوصيات.

Value Relevance vis-à-vis Disclosure on Business Combinations and Goodwill Recognized by Publicly Traded Brazilian Companies

Abstract The objective of this study is to examine the value relevance of the level of disclosure on business combinations and goodwill recognized by publicly traded Brazilian companies. The research sample is composed of publicly traded Brazilian companies that carried out any type of business combination, as the acquiring entity, between 2010 and 2013, yielding a total sample of 202 observations. To measure the disclosure level of each, a metric was created based on CPC-15 R1 (2011) to examine certain disclosure items in order to render a greater level of detail. Data collection was carried out using the footnotes to the annual consolidated standardized financial statements (DFPs) available from the São Paulo Stock Exchange (BM&FBOVESPA) website. The results revealed that disclosure levels for business combinations are positively and significantly associated with the stock price of the companies analyzed. As to the recognition of goodwill during business combinations, despite the fact that it represents a significant share of the value of the transactions, no statistical significance explaining stock price behavior was found. It also bears mentioning that the average level of disclosure identified in the explanatory notes in the sample was very low, indicating that companies need to improve when it comes to transparency of information.

The Accounting Treatment of Goodwill, Idiosyncratic Risk, and Market Pricing

We study the relationship between goodwill and future returns by considering how the information content of goodwill before and after Statement of Financial Accounting Standards (SFAS) 142 affects idiosyncratic return volatility ( IVOL). Contrary to expectations, previous research has documented that stocks with high IVOL have low future returns ( IVOL anomaly). We build on research that shows that high IVOL is a function of low information on future earnings and define goodwill as a growth option that could be priced through IVOL. Our results show that, during the goodwill amortization period, IVOL is high and the IVOL anomaly is strong. In contrast, nonamortized and tested for impairment goodwill is informative and corrects the IVOL anomaly. We find evidence that SFAS 142’s recognition of goodwill as an asset with indefinite useful life results in value-relevant information about firm growth options and future earnings, thus reducing IVOL, eliminating the IVOL anomaly, and creating an environment of more efficient market pricing of risk.

The Recognition of Goodwill and Other Intangible Assets in Business Combinations – The Portuguese Case

In this study, we investigate the magnitude of goodwill recognised in business combinations during the years 2005 to 2009 by the Portuguese companies listed on Euronext Lisbon, and characterise the amount of the other intangible assets recognised separately from goodwill. We also analyse the level of compliance of those companies with the main disclosure requirements of International Financial Reporting Standard (IFRS) 3 – Business Combinations. Our study, which involves the analysis of 197 business combinations, reveals that the amounts of goodwill continue to be highly material, while conversely, the value of identifiable intangible assets in those acquisitions is very low. The results suggest that Portuguese companies do not undertake sufficient efforts to individually identify and disclose intangibles acquired in business combinations. This fact is reinforced by the reduced level of compliance with the disclosures required by IFRS 3, particularly the factors that contribute to the recognition of goodwill. Our findings provide feedback to standard setters in an effort to improve practice in the application of IFRS 3. Moreover, they reinforce their recent concerns regarding the post‐implementation review of business combinations, as well as the ongoing project of the IASB, whose objective is to improve disclosures in existing standards.

What drives the allocation of the purchase price to goodwill?

This study examines the proportion of the purchase price allocated to goodwill after the successful acquisition of a publicly listed firm. Using hand collected data we document that 42% of acquirers record a nil amount for goodwill. We find that the amount allocated to goodwill is generally unrelated to target firm economic characteristics. In contrast, consistent with managerial opportunism, we find a positive association between the use of accounting based bonus plans to compensate acquiring firm CEOs and the amount allocated to goodwill. The amount allocated to goodwill also increases after Australia adopted IFRS which no longer required goodwill to be systematically amortised. Other variables associated with goodwill recognition include the acquiring firm's leverage, the takeover premium, whether the target and the bidder operate in the same industry, existing goodwill in the target firm before the takeover announcement and the method of payment used in the acquisition.

Comparison of accounting methods for business combinations

The revised accounting rules applicable to business combinations in force on July1st 2009, are the result of several years efforts the convergence of U.S. and International Committee of the Financial Accounting Standards. Following the harmonization of global accounting procedures are revised and implemented also Czech accounting regulations. In our research we wanted to see how changes can affect the strategy and timing of business combinations. Comparative analysis is mainly focused on the differences between U.S. and international accounting policies and Czech accounting regulations. Key areas of analysis and synthesis are the identification of business combination, accounting methods for business combinations and goodwill recognition. The result is to assess the impact of the identified differences in the reported financial position and profit or loss of company.

Executive compensation and goodwill recognition under IFRS: Evidence from European mergers

Based on principal agent theory we posit that managers account for a business combination opportunistically by recognizing goodwill in excess of its economic determinants. We examine the relationship between CEOs’ short-term cash bonuses and the amount of goodwill recognized in IFRS acquisitions. We find that with increasing cash bonus intensity managers recognize more goodwill. More detailed analysis indicates that this relationship is not a linear one. Instead, there seems to be a corridor in which CEOs are susceptible to the incentive given by bonus payments. In particular, the relationship seems to be fulfilled only for CEOs whose cash bonus is between 150% and 200% of their base salary prior to the acquisition. Our findings have an implication for companies that bonus caps should be introduced to limit CEOs’ bonuses to a given percentage of their base salary. By doing so, they may re-align shareholders’ and managers’ interests and avoid an increased impairment risk in the future.

The Australian Market Perception Of Goodwill And Identifiable Intangibles

The Australian Market Perception Of Goodwill And Identifiable Intangibles

Price‐to‐earnings multiplies and mergers and acquisition

This paper examines the assertion that the financial market pays fixed PE multiples and that the recognition of goodwill and subsequent amortization depresses earnings and stock prices, putting U.S. firms in a competitive disadvantage in the international merger and acquisition arena. Evidence from this study suggests that, contrary to common belief, price/earnings ratio expands by a sufficient amount in response to amortization, making amortization irrelevant to stock valuation.