Cause Analysis And Economic Consequences Of Huge Goodwill Impairment

In 2014,the promulgating of the "Administrative Measures for the Acquisition of Listed Companies" means that the government encourages corporations to actively participate in mergers and acquisitions and restructuring activities,hoping to achieve the purpose of activating the capital market and promoting the optimization of resource allocation through mergers and acquisitions between companies.With the increase in the number of M&A transactions,M&A transactions with the characteristics of "high valuation,high premium,and high goodwill" are also common.The continuous emergence of high-premium M&A transactions makes the presentation of goodwill assets and even huge amounts of goodwill in financial statements.The number of companies is also rising,and the scale of goodwill has doubled.As of 2018,our country’s net amount of goodwill was 1.316 trillion yuan,and the terrifying scale of goodwill has also brought huge impairment risks to the capital market.Our country currently uses the impairment test method to measure goodwill,and the provision of goodwill impairment is uncertain.In recent years,my country has seen frequent incidents of goodwill explosions,and this phenomenon has also attracted the attention of investors and regulatory authorities.The impairment of goodwill will not only seriously damage the interests of investors,but also disrupt the normal order of the capital market,which is not conducive to the sound development of the capital market.The issue of impairment of goodwill has become a key concern of the capital market.In this context,this article selects the case of Dongfang Jinggong as the object of analysis.After introducing the goodwill of my country’s listed companies,it follows the logic of "case background—analysis of the reasons for impairment provision—analysis of economic consequences".Let’s start the analysis.Among them,in the "case background" part,this article sorts out the initial transaction plan of the M&A in detail to the impairment of goodwill;in the "analysis of the reason for impairment provision",the article analyzes the valuation of the acquisition,the performance of the acquired party,and the performance The gambling agreement trend is analyzed from three perspectives,and the three perspectives are explored in a deeper level,and strive to find the deep motivation;In the "economic consequences analysis" part,this article first uses the event research method to analyze the severity of the market’s response to the event through stock price changes,and then uses the financial indicator analysis method to study the fluctuations of Dongfang Jinggong’s indicators before and after goodwill impairment.Finally,conclusions and enlightenments are obtained based on the above-mentioned research.The research found in this paper: First,if you are too confident about the future development of the industry or M&A target when valuation,it is easy to cause the valuation result to be falsely high,which will form a huge amount of goodwill and bury hidden dangers of impairment;second,the new energy vehicle industry is easy For industries affected by policies,industry prospects and corporate performance fluctuate with policy changes;third,although connected transactions can help fulfill performance commitments,they can easily affect profit determination;fourth,huge impairment of goodwill will erode company performance and cause stock prices to fall;fifth,setting unreasonable performance commitments will create performance pressure that is difficult to bear,and once the commitments are not completed,it will cause impairment.Finally,summarize the lessons of the case,and put forward different suggestions for mergers and acquisitions,market regulators,and small and medium investors.Including: 1.Reasonable valuation and prudent mergers and acquisitions;2.Correct use and setting of performance commitments;3.Strengthen corporate integration after completion of mergers and acquisitions;4.Improve follow-up measurement methods of goodwill;5.Collect information from multiple parties before investing,Make decisions carefully.