The Impact Of Consolidated Goodwill On Corporate Performance

Since the Accounting Standards for Business Enterprises(2006)have been applied 2006,goodwill derived from the premium paid during merger and acqusition(M&A)has been desclosed as one single asset on the balance sheet over more than ten years.Also,the new standards adopted the impairment test instead of system amortization as the only subsequent accounting method of the conbined goodwill.According to Wind database,the total goodwill balance of A-share listed companies in 2007 was 38.662 billion,the total goodwill impairment was 47 million,the number of companies disclosing goodwill impairment was 37,and the number of companies disclosing goodwill balance was 564.By 2016,the total goodwill balance increased to 10.49.651 billion,exceeding trillion,and the total goodwill impairment reached 9.89 billion.The number of companies disclosing impairment of goodwill also increased to 309,and the number of companies disclosing the balance of goodwill increased to 1 748.That is to say,more than half of A-share listed companies have goodwill as an asset in their statements,and 17.68% of them have calculated impairment of goodwill.With the development of merger and acqusition(M&A),M&A goodwill and its impairment have increased by leaps and bounds in recent years,which has become one of the most important problem in China’s capital market,and has attracted the attention of regulatory authorities,theoretical and practical circles.Therefore,further researches on M&A goodwill are helpful to providind the corresponding theoretical basis for the regulatory authorities and the practical circles.Is the essence of M&A goodwill excess earnings,which can really improve the long-term performance of enterprises?Or is it just a difference of price o f M&A?Is the impairment test of M&A goodwill reasonable and how to improve it?The present researches on the subsequent accounting method of M&A goodwill are mainly focus on the impairment itself.However,besides the study of the impairment test itself,we believe that the reconsideration of amortiztion is necessary in order to improve the subsequent accounting method of goodwill.The study of the nature of the M&A goodwill and its influence on performance and market value of listed companies will be contribution to answer the question that whether if the amortization should be reconsidered.In addition,the existing literature rarely explores the mechanism of the impact of M&A goodwill on corporate performance.This paper will focus on the impact of M&A goodwill on corporate performance and the mechanism of it,so that can provide more empirical evidence for regulating the issue of goodwill in capital market.Based on the sample of Listed Companies in A-share market from 2007 to 2016,this paper explores the relationship between M&A goodwill and corporate performance.The mainly results of this studies are concluded as follows:Firstly,the total amount of goodwill,the proportion of goodwill account in total assets and the impairment of goodwill of A-share listed companies in China have increased significantly,especially influenced by the active activities of mergers and acquisitions,in recent years.From the perspective of industry distribution,goodwill balance and its impairment increase greatly in information and technology industry,and goodwill balance of this industry accounts for a large proportion of total assets,and the risk of impairment is huge.From the distribution of the board,the growth of the goodwill balance、the impairment of goodwill and the proportion of goodwill in the total assets of GEM companies are the largest.Secondly,in terms of the impact of M&A goodwill on corporate performance,this study did not find any evidence that M&A goodwill can bring current or lasting excess returns for enterprises.The recognition of M&A Goodwill under the current accounting standards derived mainly from the price difference of mergers and acquisitions,which includes a considerable degree of “non-core goodwill”and deviates from the nature of its excess earnings.The impact of M&A goodwill on corporate performance has different effects according to the classification of M&A goodwill in this paper.This paper divides the M&A goodwill into the goodwill recognized in the current period and the goodwill balance(book value of M&A goodwill)to examine their influence on corporate performance.M&A goodwill recognized in the current period has positive influence on the current performance of enterprises.The book value of M&A goodwill has significant negative impact on the performance of enterprises of the current,next period or even longer period.In addition,industry concentration has a positive moderating effect on the relationship between M&A goodwill and corporate performance.Industry concentration enhances the positive influence of current recognized goodwill on corporate performance and mitigates the negative impact of book value of goodwill on corporate performance.Mergers and acquisitions between enterprises in higher concentrated industries are more likely to generate synergy effects.Besides,enterprises with higher competitive position in the industry have stronger bargaining power at the beginning of mergers and acquisitions,so that they are not likely to overpay for the M&A which resulting in overvalued M&A goodwill.Therefore,the quality of M&A goodwill generated by this type of mergers and acquisitions is better than others,and it is easier to have a positive influence on corporate performance.Thridly,in term of the mechanism of the effect of M&A goodwill on corporate performance,this paper found that the M&A goodwill recognized at the current period increases the degree of positive earnings management of enterprises,meanwhile,the stockpayment made for M&A has a significant positive regulating effect on the relationship between them.That is,the extensive use of stockpayment aggravates the degree of earnings management in the process of M&A goodwill confirmation.Furthermore,the result of examining the relationship between M&A goodwill and corporate performance with earnings management as moderate variable showed that earnings management does play a partial mediating role in the relationship between M&A goodwill and corporate performance,that is,positive earnings management account for the positive influence of M&A goodwill recognized by enterprises at the current period on performance on a certain extent.Hence,the M&A goodwill in this case contains a certain degree of valuation bubble,which has no essential improvement on the performance of enterprises,especially the long-term performance of enterprises.Fourthly,this paper analyzed the mechanism of the impact of the M&A goodwill book value on the performance of enterprises.It is found that the M&A goodwill book value confirmed by the current goodwill accounting standards increases the information asymmetry between enterprises and investors due to the bubbles in its valuation and the motivation of earnings management in subsequent measurement.The book value of M&A goodwill increases external financing constraints.However,the nature of property rights of state-owned enterprises and the Big—4 audits can negatively regulate the relationship between M&A goodwill and corporate financing constraints,that is,they can restrain the external financing constraints caused by the book value of M&A goodwill to a certain extent.The information asymmetry caused by the decline of the quality of goodwill accounting information leads to financing constraints.The improvement of the quality of M&A goodwill accounting information by property rights and audit quality alleviating the financing constraints.Furthermore,this paper examines the impact of M&A goodwill book value on corporate performance with financing constraints as moderate variable.Results showed that financing constraints does has partial mediating effect on the relationship between M&A goodwill book value and corporate performance.That is,the book value of M&A goodwill aggravates the external financing constraints which has a negative impact on corporate performance.Based on all above conclusions,this paper puts forward the following suggestions: first,the regulatory authorities should strengthen the supervision of industries with high risk of impairment of goodwill,especially for industries and companies with high proportion of goodwill in assets,cross-border mergers and acquisitions and low industry concentration to protect investors’ interests and prevent listed companies from manipulating goodwill and impairment for earnings management.Besides,the requirement of disclosure for M&A goodwill accounting information should be improved include the process of impairment test.In addition to the regulation of M&A goodwill,the more important thing is to improve the accounting standards for goodwill.This paper suggests that we should reconsider the introduction of amortization method in the subsequent accounting for goodwill.Introduction of amortization method could prevent overstating valuation of goodwill and manipulation of huge goodwill impairment which resulting in large fluctuations of corporate performance.Moreover,the introduction of amortization impose long-term amortization costs upon enterprises after the merger.The higher the goodwill value is,the larger the amortization costs is.Hence,enterprises will be more cautious about merger and acquisition activities which restraining enterprises from using merger and acquisition to expand rashly.Also,this paper proposes to avoid using the present value model to test the impairment of M&A goodwill,propeling the application of the first level fair value in the subsequent accounting of M&A goodwill and standardizing the disclosure of the impairment information of goodwill in order to preventing earnings management.