Study On Causes Of Huge Goodwill And Its Impairment In Acquisition

With the marketization becoming increasingly active in China,listed companies' merger and acquisition has become normal for listed companies.In recent years,the amount of mergers and acquisitions are accelerating.In such an economic situation,it is often followed by a series of problems.And the most representative one may be huge goodwill occurred in acquisition,which has become a double-edged sword.It not only means that the target enterprise has a higher ability to obtain profits in the future,but also contains some immeasurable risks,such as goodwill impairment risk,performance commitment risk and equity risk of small and medium investors.Problems with the huge amount of goodwill generated by high valuation and high premium also ring alarm bells for regulators.Based on this practical significance,this paper first sorts out the research literature in related fields,and expounds the concepts and theories related to merger and acquisition of enterprises and goodwill.Secondly,this paper selects Dongfang Precision's acquisition of Pride Power as the case study object.Through financial indicators and the transaction between the management of both sides before the merger and reorganization,it analyzes whether the high valuation of the host enterprise on the target enterprise is reasonable.This paper probes into the reasons why the performance commitment of Pride Power is not up to standard and analyzes the reasons for the impairment of goodwill;Finally,through the research of the high premium merger and acquisition,it is found that high goodwill may not bring high profits to enterprises.Failure of performance commitment becomes a sufficient condition for impairment of goodwill;Large goodwill impairment will hurt the interests of small and medium investors.Therefore,the paper puts forward relevant Suggestions: reasonably evaluate the value of the underlying assets and reasonably confirm the goodwill;Restrain unreasonable high premium transactions and high performance commitments in M&A;The subsequent measurement method combining amortization and impairment shall be adopted to reduce the impairment risk of goodwill.Regulators should strengthen the supervision of the capital market and take necessary measures to protect the interests of small and medium investors.