Research On The Economic Consequences Of Excess Goodwill

In recent years,the trend of the development of M&A has been "blowout".High premium payment in M&A has become the "new normal".High premium payment makes listed companies accumulate high goodwill assets,and high goodwill assets may contain a certain degree of goodwill bubble.With the rapid accumulation of goodwill assets,the issue of high goodwill of listed companies has attracted extensive attention from the regulatory authorities.In 2016 and 2017,China Securities Regulatory Commission(CSRC)disclosed the statistical data in the Annual Report on Accounting Supervision of Listed Companies,which showed that goodwill accounted for a large amount of the total payment in M&A.In 2018,the CSRC’s Annual Report on Accounting Supervision of Listed Companies directly pointed out that goodwill was artificially high at the initial recognition.At the same time,the Annual Report on Accounting Supervision of Listed Companies also points out that there are many opportunistic behaviors in the disclosure of goodwill impairment of listed companies,and the opportunistic behavior of listed companies in goodwill impairment makes it difficult to alleviate the problem of artificially high goodwill assets initially recognized.In the context of inflated goodwill assets and many opportunistic behaviors in the impairment of goodwill in China,it is necessary to discuss the influence of the inflated goodwill assets on corporate behavior,capital market and shareholder behavior.Taking A-share listed companies in Shanghai and Shenzhen from 2007 to 2019 as initial samples,this paper empirically examines the impact of excess goodwill on stock mispricing,controlling shareholders’ share pledging and corporate innovation.The research findings of this paper mainly include the following three points:Firstly,if a company has high excess goodwill,its stock mispricing will be greater.The reason is that if a company has high excess goodwill,it will have worse information transparency which will lead to greater level of stock mispricing.In further analysis,we also analyzes the specific direction of the influence of excess goodwill on stock mispricing.The results show that higher level of excess goodwill will lead to greater degree of stock price overvaluation.We also further studies the regulatory effect of high-quality audit.The research results show that high-quality audit can play an effective external governance mechanism,improve the information transparency of companies,and then reduce the influence of excess goodwill on the degree of stock mispricing.We also research the relationship between high goodwill and excess goodwill.The results show that when the company has high goodwill assets,the scale of excess goodwill is larger.When a listed company has high goodwill assets,the information transparency will be lower,and the degree of stock mispricing will be greater.Secondly,if a company has high excess goodwill,controlling shareholders will pledge a larger amount of their stock.The reason is that if a company has high excess goodwill,its stocks will have greater degree of overvaluation which will lead to larger scale the controlling shareholders pledging their shares.This result shows that the payment of excess goodwill can create more favorable conditions for controlling shareholders’ share pledging.In the further analysis,we find that companies with high goodwill have greater degree of stock overvaluation,and thus larger scale the controlling shareholders pledging their shares.Based on the heterogeneity analysis of audit quality,it is found that the influence of excess goodwill on share pledging behavior of controlling shareholders is more significant in the low-quality audit group.Based on the heterogeneity analysis of property nature,it is found that compared with state-owned companies,the influence of excess goodwill on controlling shareholders’share pledging behavior is more significant in private enterprises.At the same time,it is also found that it is a high-risk behavior for the controlling shareholders to pledge their shares when the excess goodwill scale is large,because the larger the excess goodwill scale is,the greater the risk of the stock price falling sharply in the future will be.Thirdly,if a company has high excess goodwill,it will have low level of innovation.The reasons are as follows:on the one hand,if a company has high excess goodwill,it will have worse operating performance which will lead to lower level of innovation;on the other hand,if a company has high excess goodwill,it will face greater financing constraint which will lead to lower level of innovation.At the same time,we analyze the heterogeneity based on three aspects,and we found that the influence of excess goodwill on innovation is more significant in companies with high goodwill assets,high fund shareholding and private enterprises.The possible innovation of this paper is reflected in the following three points:Firstly,this paper enriches the research literature on the economic consequences of excess goodwill.Most existing literatures focus on goodwill,this paper analyzes the composition of goodwill,and makes it clear that it is the excess goodwill that has an impact on stock mispricing,the share pledging behavior of controlling shareholders and corporate innovation.Secondly,this paper provides a new explanation for the payment of excess goodwill.From the perspective of the controlling shareholder’ share pledging,this paper reveals the reason of the willingness to pay excess goodwill,namely the payment of excess goodwill can create more favorable conditions for controlling shareholders’share pledging.Namely,the excessive premium paid by companies in M&A may be the self-interest behavior of insiders to satisfy their personal interests.Thirdly,based on China’s practice of "high premium,high goodwill".this paper in-depth analysis the influence of the high goodwill on stocks mispricing and controlling shareholders’ share pledging,which makes this paper can better serve the practice of China’s capital market,and also shed light on the logic of "high goodwill and high share pledging".