On The Prevention Of The Goodwill Impairment Risk Of Corporate M&A

With the release of a series of documents encouraging mergers and acquisitions,more and more companies have expanded their scale or integrated their industries through mergers and acquisitions,which has created a wave of mergers and acquisitions.At the same time,however,the performance promises could not be realized,and the phenomenon of largevalue goodwill impairment by the acquirers also appeared in large numbers,which had a very negative impact on the Chinese securities market.Before the merger,more than half of the listed companies adopt the income method as the evaluation method of the assets under the acquisition.The inherent defects of the income method will cause the final evaluation value to deviate from the actual,and the performance commitment signed by both parties becomes the guarantee of high valuation.In order to ensure that the M&A transaction can be successfully completed at a higher price,some of the underlying companies make a clear deviation from the actual performance commitment and strict performance compensation agreement,resulting in a ten-fold premium to confirm the goodwill of the acquirer.If the company fails to form a synergistic effect after the merger,the ability to generate excess returns will weaken,which will lead to a decline in the performance of the underlying assets.The risk of impairment of the huge goodwill recognized at the initial stage of the merger is gradually exposed.Even some target companies may shun short-term performance compensation,generate short-sighted behavior,overdraw corporate profits in advance,and show signs of change after the performance commitment,and put forward various excuses,such as the macroeconomic downturn and the industry downturn.These actions led to violent fluctuations in the performance of the M&A company,and the one-off provision for huge goodwill impairment seriously infringed the interests of the minority shareholders.Nowadays,the system of disclosure of goodwill accounting information is not perfect enough.The academic community has been arguing about the follow-up measurement of goodwill,and it gives enterprises the opportunity to use the goodwill impairment to manipulate profits.In such a context,how to avoid the huge impairment of mergers and acquisitions is a difficult problem that needs to be solved today.In order to more accurately understand goodwill impairment and performance commitments in China's M&A market,and propose specific effective measures for reference,this paper analyzes the case of Ronglian's acquisition of Taihejiatong,and adopts the literature research method,the event research method and case study method to analyze in detail the impact of initial valuation,subsequent integration,performance commitment and goodwill impairment treatment on goodwill impairment risk,and explored the causes of goodwill impairment risk after performance commitment period.This article selects Ronglian to acquire Taihejiatong as an example.Firstly,it introduces the research background and research significance,summarizes and reviews related literature reviews at home and abroad,introduces the research content and research methods.Secondly it gives the concept of goodwill impairment,performance commitment and compensation mechanism.It explains information asymmetry theory,the essence of goodwill,and the initial confirmation and subsequent measurement of goodwill.The third chapter is the introduction of the case process of Ronglian's acquisition of Taihejiatong and the analysis of the consequences of goodwill impairment,and introduces the background,purpose and process of M&A.The consequences of the impairment of goodwill on the company are mainly analyzed from the three aspects of the fluctuation of the performance of the acquirer,the impairment of the major shareholder and the market is not optimistic.The fourth chapter analyzes the causes of the impairment risk of the merger and acquisition of goodwill,including the initial recognition of goodwill,the failure to integrate well after the merger,and the performance commitment to postpone the impairment of goodwill.There are defects in the handling of goodwill impairment.The fifth chapter is based on the analysis of the previous article to propose corresponding countermeasures against the risk of huge goodwill impairment after the performance commitment period: First,the M&A party should choose the target to adapt to the market environment and corporate strategy,strengthen due diligence,and carefully assess the value of cross-industry enterprises.Second,the merger and acquisition party will improve Post-integration ability,pay attention to post-merger business integration and manpower integration,realize deep-level resource integration.Third,the company should use performance commitment and compensation clauses rationally,including improving performance commitment agreement,and setting flexible performance indicators and corresponding compensation clauses.The agreement may increase the incentive clause for the management of the acquired party.The fourth is that the supervision layer should regulate the confirmation of the goodwill and the subsequent measurement,improve the construction of the relevant system for accounting information disclosure,and strengthen the external supervision.The sixth chapter draws conclusions and analyzes the research innovations and research limitations of this paper.The research in this paper finds that mergers and acquisitions tend to produce unreasonable premiums to confirm goodwill.After mergers and acquisitions,the lack of focus on business integration will lead to the occurrence of goodwill impairment.The defects of performance commitment and compensation agreement are likely to delay the depreciation of goodwill.However,China's current provisions on the initial confirmation and subsequent measurement of goodwill are insufficient.The disclosure of the impairment of goodwill is not strict,which leads to the damage of the interests of market investors.Therefore,measures should be taken to prevent the huge amount of goodwill impairment after mergers and acquisitions.This paper starts from the frequent occurrence of goodwill impairment in the capital market,which is the latest factor affecting the healthy development of the market.In order to solve this practical problem,we conduct in-depth research on individual cases,and analyze the risk of goodwill impairment in a more detailed and targeted manner.The incentives,performance commitments and compensation mechanisms have an impact on the risk reduction of goodwill,and are the causes of the impairment risk of goodwill after mergers and acquisitions.The study enriches the relevant literature and enrich the existing theoretical analysis.Finally,based on the analysis results,this paper proposes a practical and feasible countermeasure to prevent the risk of goodwill impairment,and provides reference suggestions for the relevant departments to improve the regulations and strengthen supervision.