Research On Earnings Management Behavior And Consequences In Goodwill Impairment

Mergers and acquisitions(M&A),as the main means of expansion for companies to gain market share and enhance competitiveness,has become a hot topic in the capital market during the transformation of the economic system.Goodwill,which has symbiotic relationships with M&A,has also become the focus of investors in recent years.Driven by industrial restructuring and policies,the latest Chinese wave of M&A continued booming in 2014-2016.Listed companies in the A-share market have expanded their scale through frequent M&A,and the extent of goodwill as consequences has also been increasing year by year.As a "double-edged sword",goodwill,besides bringing excess profitability and cash flow to the company,may also cause destructive impairment charges.The original intention of introducing the Goodwill Impairment Testing method is to ensure that the company truly reflects the value relevance of goodwill,and to further guarantee the quality of financial information.However,there are a large number of factors that require management’s subjective judgment in the process of impairment testing,and the discretion given to management by the Standards,making goodwill impairment in M&A a tool for opportunistic earnings management.Therefore,this paper focuses on the goodwill impairment,and analyzes the motives,means and consequences of corporate managers using huge amounts of goodwill impairment for earnings management in specific case.This paper mainly adopts the literature study method,case study method and event study method for research design.First of all,based on the literature review of goodwill impairment and earnings management,this paper first combs the current situation of the goodwill impairment risk and criteria background of listed companies in A-share market,sorts out the relevant theories of earnings management and M&A goodwill impairment laying a theoretical foundation.Secondly,the paper selects Lecron Shares,which has a more prominent issue of goodwill impairment in 2018,as the case study object.On the basis of elaborating the formation and impairment of the M&A goodwill of Lecron Shares,this paper believes that Lecron Shares’ managers have opportunistic motives such as opportunistic shareholding reduction,refinancing and equity incentives to use the asymmetry of information and the discretionary space given by the Standards to carry out earnings management through the below means:overestimate the underlying assets to form a goodwill bubble,hence bury hiddendangers for the future goodwill impairment;less accrual of the goodwill impairment to delay the risk;accrue one-time goodwill impairment preparation for the financial statement "big bath" to release risk;sell the company’s loss assets to related parties at a low price to achieve "turning losses into profits" in the future.These behaviors undermined the contractual relationship between the management and stakeholders,which caused the company’s financial performance to decline sharply and the stock market value to shrink sharply.In the meantime,many warning letters issued by the Securities Regulatory Bureau and multiple negative reports from the financial news media both damaged Lecron Share’s corporate image.In response to the above conclusions,this paper puts forward suggestions in terms of improving accounting standards,enhancing corporate governance and strengthening supervision,in order to ameliorate the value relevance of goodwill impairment information.The main innovations of this paper are as follows: First,analyses multi-dimensionally the current status of the risk of goodwill impairment and sorts out the earnings management motives and means hidden in the M&A goodwill impairment,and establishes a complete theoretical analysis framework.The second is to focus on specific case analysis,explore the motivation,means and consequences of earnings management in the goodwill impairment of Lecron Shares,and proposes improvements to improve the value relevance of goodwill impairment.