Study On The Causes And Effects Of Goodwill Impairment Of Listed Companies

With the development of economic,"Matthew effect" began to appear in China,so a large number of enterprises adopted the method of mergers and acquisitions to rapidly expand scale.Along with the expiration of performance commitments one after another in 2019,Merged enterprises’ performance began to decline sharply.On January 4 of the same year,the Ministry of Finance Accounting Standards Committee discussed that amortization can better achieve the goal of zero goodwill impairment than impairment test method.If the subsequent measurement method of goodwill is changed to amortization method,the amortization of huge goodwill will make the book profit of listed companies negative for three consecutive years,and eventually face the delisting risk.Therefore,a large number of enterprises take advantage of the opportunity to perform ’ big bath ’ and accrue huge goodwill impairment,which seriously endangers the interests of investors.In March2020,the IASB also held discussions on the follow-up measurement of goodwill.Therefore,the issue of goodwill impairment needs to be studied urgently,in order to limit the behavior of enterprises that harm the interests of small and medium-sized shares,improve the quality of financial statement information,promote the healthy and orderly development of China’s market economy.This paper selects high and new tech enterprise,CGS Co.,Ltd.,as the case study subject,because in 2019 almost all book goodwill was accrued.Firstly,the goodwill of Shanghai and Shenzhen A-share listed companies and their sub-sectors from 2014 to 2021 is analyzed.It is concluded that there is "group behavior" in goodwill impairment and the problem of goodwill on business launching board is prominent.Since business launching board is mainly a gathering place for high-tech enterprises,this paper further analyzes the goodwill of high-tech enterprises,drawing a conclusion that its proportion of impairment in A-share is higher than that in other sectors.Secondly,describes CGS’s M&A transaction and goodwill formation process,and then analyzes the causes of huge goodwill impairment from three levels,initial recognition of M&A goodwill,subsequent measurement and relevant policies.The study concluded that an impairment of RMB1.609 billion at one time occurred in CGS Co.,Ltd.is due to sky-high valuations,performance commitments,synergistic effect not meeting expectations,managers’ earnings management behavior,the behavior of directors and supervisors,and policy change.Next,the impact of impairment is analyzed from the perspective of corporate performance,accounting information quality and investors’ short-term reaction.Financial problems of enterprises were revealed.In this way,cash flow and debt repayment problems further deteriorated.R&D investment decreased.The quality of accounting information was questioned,inquiry letters being received frequently.Company operating losses for three consecutive years.Short-term market reaction was strong.Finally,in view of value evaluation,performance commitment,synergistic effect,earnings management,inappropriate conduct by directors and officers,as well as goodwill measurement,targeted prevention suggestions are put forward from the three levels of listed companies,external regulators and investors.