Study On The Causes And Economic Consequences Of Goodwill Impairment Of Huangshi Group After Its Acquisition Of Yujiayingshi

With the development of economic globalization,enterprises are facing increasingly fierce industry competition.Through mergers and acquisitions,enterprises can expand their market share,improve technology and management levels,diversify operations,and,enter new markets.Thus,many companies choose to achieve their strategic goals through mergers and acquisitions.However,a large number of mergers and acquisitions of enterprises has also led to rapid growth of the value of goodwill for years.Once the business situation changes,enterprises may face huge pressures and risks of impairment.When Chinese New Year in 2019 was approaching,Chinese A-share market has experienced a goodwill “thunder” incident that shocked the nationals.The cause of the incident was the content of the “Enterprise Accounting Standards Update(2018 Issue 9)” issued by the Accounting Standards Committee of the Ministry of Finance.In the document,most of the advisory members considered that it is better to meet the requirement of accounting information quality and more beneficial to reduce the book value of goodwill to zero when amortize goodwill than when goodwil l only accrues impairment in the present guideline.Because of the document,A-share listed companies that had previously forecasted earnings as profit turned out to "change their performance" and "turn profits into losses".The "performance change" of nearly 300 listed companies was related to goodwill.Thus,it is particularly important to study the formation and the reasons of impairment of huge goodwill,and to effectively avoid its impairment risksThis article selects Huangshi Group,a company whose performance has changed due to a large amount of goodwill impairment in 2018,as the case study object.Firstly,systematically sort out the relevant theories and literatures of goodwill in mergers and acquisitions;Secondly,analyze the formation of high-premium mergers and acquisitions and find fierce competition in the control market,Huangshi Group’s urgent diversified development needs,the impact of M & A payment methods,the inadequate reflation of the value of intangible assets,the impreciseness to use the income method as an evaluation method,the goodwill bubbles and other six results due to promise of high performance;Thirdly,analyze the causes of impairment of the Huangshi Group’s huge goodwill and find that the reasons of the goodwill impairment include the high M & A price,the use of capitalization methods to ensure initial recognition of goodwill,the hysteresis in the provision of impairment reserves and the motivation to use goodwill impairment for earnings management due to management control.Fourthly,analyze the economic consequences of the accumulation of goodwill and find that goodwill has a significant correlation with the company’s stock price,that impairment of goodwill will damage shareholders’ equity,that the formation and impairment of goodwill will affect the profitability of the current company,and that the provision for huge impairment will lead to a decline in the solvency(especially the long-term solvency)of the enterprise.Fifthly,give suggestions to the relevant enterprises and the regulatory authorities on the control the risk of impairment of goodwill and some prevention measures.This article will analyze the causes of the huge amount of goodwill impairment from multiple perspectives,put forward comprehensive and systematic measures to prevent goodwill impairment risks as properly as possible,and provide some suggestions for related companies and regulatory authorities.