The Analysis Of Economic Consequence On The Choice Of Merger Accounting Treatment Methods Based On New Accounting Standards

The Analysis of Economic Consequence on the Choice of Merger Accounting Treatment Methods Based on New Accounting StandardsIn business mergers, the difference of economic consequence,which derives from the choice of the pooling of interest method and the purchase method, has always been an accounting dilemma confusing researchers all over the world. FASB and IASB canceled the pooling of interest method in 2001 and 2003, only retaining the purchase method. In China, Accounting Standards for Business Enterprises issued by Ministry of Finance in 2006 retain the pooling of interest method and have a clear distinction between two methods on the scope of application and the accounting treatment. According to the goodwill derived from purchase method,CAS(China Accounting Standards) draws the goodwill treatment of FASB and IASB. Goodwill no longer is amortized,but rather to impairment testing annually. It narrows the financial difference between two methods. The new merger accounting treatment methods of new accounting standards not only takes into consideration the actual conditions in China but also takes into account the convergence with international accounting standards.Based on the above background, the article selects 72 merging samples from Shanghai and Shenzhen stock exchanges in 2008 and 2009 after the implementation of the new merger accounting standard. Through the event study and probit analysis, the article empirically tests the different economic effects from the choice of the pooling interest of method and purchase method. In the study, the merger samples are divided into two groups which are pooling of interest method group and purchase method group. By the descriptive statistical analysis and independent samples t test, the CARs of two groups within window period are tested separately before and after the merger announcement date. The testing results show that before the merger announcement date,the average CAR of pooling of interest method is positive and that of purchase method is negative. They have significant difference. After merger announcement date,the average CARs of both merger method are positive and they have no significant difference. It means that before merger announcement date, investors have negative response on purchase method. It is possibly because that under the purchase method,the acquisitions are always through the means of cash or debt,so the expectation of company performance is uncertain. After merger announcement date,basic information of acquisitions is disclosed. Investors have positive response. Meanwhile,that goodwill no longer is amortized,but rather to impairment testing annually enhances the confidence of investors.To further test the hypotheses,the article chooses ROA, ROE(associated with profitability);equity ratio,asset-liability ratio(associated with ability of debt financing). Through probit analysis, it tests the correlation between the four indicators and the merger methods. It was found that four indicators are all significant positive. Testing results of ROA and ROE mean the companies with higher profitability in the end of the accounting year prefer to choose pooling of interest method rather than purchase method, taking into account reporting higher profit. Testing results of equity ratio and asset-liability ratio mean that companies with high financial leverage more tend to select the pooling of interest method.In the end,based on the China's national conditions,without giving up pooling of interest method,the article gives reasonable proposals on how to reduce the difference of economic consequence from two merger accounting treatment methods.The conclusion of the article shows that although the new merger accounting standard with good intentions narrows the difference of accounting treatment between two methods, investors and companies are still preferred pooling of interest method,the economic consequences from pooling of interest method and purchase method are different. Compared with previous studies,connotation of new merger accounting treatment methods changes. According to new changes, by the empirical research, the article analyzes the short-term market performance from the choice merger accounting treatment methods and the relationship between financial indicators and merger accounting treatment methods. Through research,it can enrich the content of merger accounting theory of China and provide a valuable reference for the evaluation of effects of the new merger accounting standard by financial departments in China.