The nature and implications of acquisition goodwill*

Nir Yehuda*, Linda Vincent, Thomas Lys

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

We investigate the conditions under which the accounting-based acquisition goodwill represents an economic asset. Analysis of the stock market reaction to 2123 acquisitions suggests that although investors perceive 41% of the acquisitions to have a negative net present value consistent with overpayment for the target, the acquirer records positive accounting goodwill. Adjusting the goodwill to eliminate any overpayment results in a better prediction of future operating performance. As a thought experiment, we also increase the recognized accounting goodwill for the remaining 59% of the sample. Again, we show that this goodwill construct is a better predictor of future operating performance.

Original languageEnglish (US)
Pages (from-to)709-730
Number of pages22
JournalAsia-Pacific Journal of Accounting and Economics
Volume26
Issue number6
DOIs
StatePublished - Nov 2 2019

Keywords

  • Goodwill
  • mergers and acquisitions

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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