A Empirical Study On Value-relevance Of Listed Company Goodwill

As the capital market becomes more mature day by day, more and more M&A cases happened amongst the Chinese companies. The ever-developing securities market and the ever-changing information require higher and higher standard on the accounting information disclosure, and the relative research has attracted increasingly concern. The goodwill related research emerges right under this background, such as research on the natural, verify measurement, disclosure influence, etc.Goodwill is defined as an invisible asset which leads to a long-term profit owned by enterprises, and those many influential factors helping to obtain and sustain the capacity of excessive profit include good public praise, monopolized privilege, outstanding management team, advanced technologies, favorable locations, etc. Therefore, goodwill is indiscernible and reflected via a total price, since it comes under the effects of various elements, a peculiar asset which distinguishes amongst other identifiable assets in the accounting. The amount of goodwill either owned or controlled by the enterprises reveals their capacity in sustaining above-everaged profit among the same trade. And as a matter of fact, the current value of the future profit determines the market value, i.e. a greater goodwill leads to a greater market value, otherwise smaller, if a presumed effective market and information announced by the quoted company. That is to say, goodwill concerns value. The research on the relationship between the goodwill and the market value firstly helps managers to know the real scale and value of their resource better, improve management and business performance, secondly helps investors understand the accounting information better and know the enterprises, thirdly provide reference frame for establishing standards related to accounting.The studies on goodwill value relevance are quite limited. This paper studied the value relevance of goodwill to a company’s market value based on the example of the Shanghai A-Stock of which the goodwill is above zero between the year of2008and2010and the means of Feltham-Ohlson empirical modes and Vuong test method. The study found out that the value relevance of goodwill to a company’s market value is positive correlation, which illustrates that the goodness which contributes to the extraordinary profitability, to some extent, determines the value of a company. In addition, the goodwill amounts, which are revealed by the companies that had the new-gained goodwill, have a more significant influence on their market values. Since the goodwill is considered as an unrecognizable stock property, the investors believe that the newly-increased issues of premium merger enlarged the amount of this stock property, which actually led to the fact that the companies have gained new excess earning points with the market’s attention amplifying its impact on the market value. What’s more, as a property, after the prudent accounting measurement as well as being deducted the impairment loss, the goodwill will have a better quality. The reason is that the companies will count and draw the impairment of goodwill out of the accountant cautious principle when they found out that premium merger subsidiary corporations that were not under the same control are suffering a decreasing profitability. On this basis, we can conclude that in the market, the goodwill amounts which are deducted the deprecation reserves are more cautious than the original ones and can unfold the companies’profitability more accurately. Last but not the least, this paper provides several political suggestions towards the enhancement of account information quality according to the results of the empirical research.