Goodwill Impairment,Management Power And Executive Compensation

As the sequelae of high-premium mergers and acquisitions gradually appear,goodwill impairment has become a “black hole” in the performance of listed companies.Merger and acquisition(M&A),a mean for enterprises to optimize the allocation of resources,can help enterprises to enhance competitiveness.So it is one of the important decisions that executives make.However,M&As are both risky and profitable behaviors.Goodwill impairment caused by the failing M&As would affect the profit of enterprises and cause damage to shareholder value.Should the goodwill impairment be included in the performance evaluation system of executive compensation to restrain the M&A behavior of executives? Besides,it is increasingly common for executives to use management power to manipulate compensations.Does management power affect the relationship between goodwill impairment and executive compensation?This thesis first reviews the existing domestic and foreign literatures on goodwill impairment,management power and executive compensation,and combines with theories such as principalagent theory,managerial power theory to analyze the effect of goodwill impairment on executive compensation,and the influence of management power,CEO change and ownership type on the relationship between the impairment of goodwill and executive compensation.Then the thesis put forward related hypotheses and empirical models.It selects China's A-share listed companies from 2009 to 2018 as samples and uses multiple regression analysis to test the relationship between the impairment of goodwill and executive compensation,and subsequently tests the moderating effects of management power,CEO change,and ownership type.Further this thesis studies the influence of management power on the relationship between the impairment of goodwill and executive compensation under CEO changes and different ownership types.This thesis finds:(1)Goodwill impairment is significantly negatively correlated with executive compensation.(2)Management power reduces the negative correlation between goodwill impairment and executive compensation.(3)After the change of CEO,Goodwill impairment is not related to executive compensation;if the CEO has not changed,goodwill impairment and executive compensation are significantly negatively correlated.(4)Goodwill impairment of state-owned enterprises is significantly negatively correlated with executive compensation,while the goodwill impairment of private enterprises is not correlated with executive compensation.Further research shows:(5)If the CEO has not changed,management power can inhibit the negative correlation between goodwill impairment and executive compensation.After the change of CEO,management power has no relevant effect.(6)In private enterprises,management power inhibits the negative correlation between goodwill impairment and executive compensation.In state-owned enterprises,management power has no relevant effect.Therefore,it can be concluded that Chinese A-share listed companies include goodwill impairment into the executive compensation evaluation system to restrain the M&A behavior of executives.For enterprises with CEOs not changed and state-owned enterprises,goodwill impairment will result in lower executive compensation.For enterprise executives to have the opportunity to use management power to conduct "rent-seeking" behaviors,such as enterprises with CEOs not changed and private enterprises,management power will inhibit the reduction of executive compensation due to goodwill impairment.The significance of this thesis is as follows: After M&A,the loss of profits by huge goodwill impairment goes against the original intention of enterprise resource integration.The verification of the role of goodwill impairment in the executive compensation evaluation system and the regulating role of management power is conducive to the establishment of an effective compensation incentive system.It is of positive significance to alleviate the principal-agent problem and improve the efficiency of enterprise procurement and procurement.