The Research Of The Impact Of Goodwill Impairment On Executive Compensation

M&A is an important part of the operation of listed companies,and has great influence on companies' existence,development and growth.As the actual core leaders,executives take significant and direct responsibility for M&A.Therefore,taking the indicators that evaluate the performance of M&A into consideration is helpful to establish a complete and effective compensation incentive system,which would be important to restrict the opportunistic behavior of executives as well as guide them to perform due diligence and make rational M&A decisions.Goodwill impairment is subjected to the fair value of the acquiree,and is therefore a potentially ideal indicator of M&A performance.This paper attempts to explore the practical application of goodwill impairment in the establishment of executive compensation plan,to make supplements to the existing literature and to provide reasonable suggestions.By reviewing the existing literature of M&A performance,goodwill impairment,the relation between executive compensation and M&A performance,etc.,based on the agency theory and the compensation contract theories,this paper put forward three assumptions:first,there is a negative correlation between goodwill impairment and executive compensation;second,the larger the M&A scale is,the more negative the correlation is;third,executives can use their power to weaken the negative impact of goodwill on their compensation.In order to verify these three hypotheses,this paper chooses China's A-share listed companies from 2007 to 2014 as samples,uses Stata12 to analyze the panel data by conducting statistical analysis and regression test to explore the relation between goodwill impairment and executive compensation,and studies the role of M&A scale and executive power in this relation.Through empirical tests,it is concluded that the goodwill impairment will significantly reduce the cash compensation of executives,that executive power can reverse this negative impact,and that large M&A scale can mitigate the above-mentioned negative impact slightly,which is opposed to the second hypothesis.In this regard,the following suggestions are made:on the one hand,it is necessary to strengthen the supervision to improve the accuracy of the goodwill impairment,making it a reliable measure of M&A performance.On the other hand,more constraints should be put on executives to restrict their power properly and then help to keep the incentive mechanism of compensation plan working effectively.The contributions this paper tries to achieve are as follows:firstly,this paper studies the impact of goodwill impairment on executive equity compensation of Chinese A-share listed companies.Secondly,in analyzing the relationship between goodwill impairment and executive compensation,the scale of the M&A project which has goodwill impairment is introduced as a moderator.Then,in the further study,this paper extends the sample period to 2015,to examine the relationship between goodwill impairment and executive compensation in a longer observation period.At last,this paper adds a new dimension to the measure of executive power,in order to evaluate the executive power and its moderating effect more fully.