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Accounting for Goodwill in Public vs. Private Deals: Evidence from US Mergers and Acquisitions
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Business Administration.
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Business Administration.
2016 (English)Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

In 2001, the FASB (Financial Accounting Standard Board) introduced accounting regulations SFAS 141 and SFAS 142 to improve the relevance, representational faithfulness, and comparability of financial reporting. The new standards have profoundly changed the accounting for business combinations and goodwill under US GAAP by requiring reporting entities to no longer amortize goodwill over its expected useful life, but to test for impairment annually. However, the new regulation has met sharp criticism for creating a scope for high levels of managerial discretion which may be exercised opportunistically in the accounting for goodwill. This study examines whether the proportion of purchase price allocated to goodwill differs between public and private acquisitions. We try to answer this question by carrying out a quantitative study on 481 observations, between the period of 2001 to 2005 by studying the relationship between acquirer type (Public vs. Private) and target firm characteristic on goodwill allocated, and we find the following results: 1) Public acquirers allocate higher levels of goodwill in comparison to private acquirers. (2) Market-to-book values of private target firms are not positively correlated with recorded goodwill levels.

Place, publisher, year, edition, pages
2016. , 46 p.
Keyword [en]
Goodwill allocation, purchase price allocation, earnings management, public acquirer, private acquirer, target characteristics.
National Category
Social Sciences
Identifiers
URN: urn:nbn:se:umu:diva-123559OAI: oai:DiVA.org:umu-123559DiVA: diva2:946820
Educational program
Master's Programme in Accounting
Presentation
2016-06-02, UB 339, Umea University, Umea, Sweden, 15:00 (English)
Supervisors
Examiners
Available from: 2016-08-19 Created: 2016-07-06 Last updated: 2016-08-19Bibliographically approved

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