A Study Of The Causes And Economic Consequences Of The Large Goodwill Impairment Of Zhangqu Technology

In recent years,listed companies have formed higher amounts of goodwill through swift mergers and acquisitions,accompanied by high premiums and high performance evaluations.However,after uncovering the true performance of companies hidden by high amounts of goodwill,a diving wave of goodwill impairment has been ushered in,with goodwill constantly thundering and high amounts of goodwill impairment sending unfavourable messages to the market and investors,undoubtedly damaging investor trust and bringing great impact to the market.2018,the SFC issued a new announcement on goodwill impairment,requiring companies to be reasonably impaired and alert to signs of impairment.2020 The Shenzhen Stock Exchange issued guidelines on the regulation of listed companies which also include goodwill as a separate article of the guidelines,clarifying that companies regulate disclosures relating to goodwill impairment.This paper selects PDA as a case company and,by analysing the characteristics of the industry it is in,the level of goodwill,and the reasons for its large goodwill and impairment and the economic consequences it brings to the company,proposes recommendations for PDA to prevent large goodwill impairment,as well as providing a reference for decision-making for a class of companies in the capital market with high goodwill impairment risk.This paper uses a combination of case studies and literature analysis to provide an in-depth discussion.Firstly,we collate the goodwill and its impairment contents in the context of domestic and international literature studies;secondly,we describe and statistically analyse the goodwill situation of the sector in which the case company is located with the help of M&A theories,such as asset impairment theory,in order to better understand the causes and consequences of goodwill impairment;finally,we analyse the goodwill impairment situation of the case company individually and present the details of the acquisition of the company before and after the completion of the transaction of the case company.The analysis focuses on the goodwill of PDA and the causes of goodwill impairment,as well as the economic consequences of goodwill impairment on PDA from both financial and market perspectives.The economic consequences of goodwill impairment on PDA are evaluated using both principal component analysis and financial indicator analysis.The principal component analysis is based on the establishment of a set of financial indicators and a performance evaluation function to reflect the changes in performance and the impact of goodwill impairment through a comprehensive performance score ranking.The market reaction to the large goodwill impairment was analysed by selecting the period after the impairment as the window period.The analysis revealed that the causes of the goodwill impairment at PDA largely reflected the economic substance surrounding the performance commitments and the majority shareholder’s surplus management motivation to cash out and delay the impairment.In terms of the economic consequences of the impairment,the impact of the large impairment on the company is as follows:firstly,in terms of financial economic consequences,the principal component analysis demonstrates that the impairment of goodwill made a major contribution to the deterioration of the company’s finances,and the analysis of financial indicators shows that the large impairment led to a significant impact on a number of financial indicators of PDA;secondly,in terms of market economic consequences,the large impairment of goodwill led to a continuous decline in PDA’s share price,resulting in Secondly,in terms of market economic consequences,the large impairment of goodwill has led to a continuous decline in PDA’s share price,resulting in a serious reduction in shareholders’ wealth and possibly affecting the company’s reputation.In summary,this paper provides suggestions for improvement from the perspective of the causes of goodwill and goodwill impairment respectively,suggesting that focusing on changes in the external environment and reasonably assessing the value of the subject company can reduce the accumulation of high goodwill,while correctly viewing performance commitments and strengthening post-merger operational integration and supervision can effectively reduce the risks associated with large goodwill impairment.It is intended to provide a reference for decision making for a class of listed companies in the GEM market with high goodwill and goodwill impairment risk.