Research On Economic Consequences Of The Implementation Of China Combination Accounting Standards Based On The Company Value Theory

Combinations accounting methods include purchase method and pooling of interest method. Different methods fit for different combination transactions and present different accounting profit figures. The two methods played important roles in the market, but SFAS141 and IFRS3 have abolished the use of the pooling of interest method in business combinations, for the economic consequences of these two methods. The choose specifications of combinations accounting methods were very vague in our country before 2006. CAS20 stipulates that a business combination under a same control must use the pooling of interest method and a business combination under a different control must use the purchase method. Our accounting standards are continuing to convergence with international accounting standards, but CAS20 allows the existence of purchase method and pooling of interest method at the same time. So, this paper studied the economic consequences of combinations accounting standards.Economic consequences are that regardless of whether the selection of accounting policies will affect the company's future cash flows, the accounting policy choices will affect the decision of managers and investors, so it will impact the firms'value. That is to say, the choice of combination accounting methods will affect the decision of managers. The managers are more likely to choose the pooling of interest method for a better accounting profit figures. This paper makes two empirical studies on the reaction of investors to different combinations methods and the value relevance between stock prices and accounting information. The results showed that the stock market make positive reactions to combinations which are under different controls, while the stock market make negative reactions to combinations which are under same controls; compare to companies whose subsidiary were all under same controls, companies whose subsidiary were all under different controls have higher correlation between their stocks price and accounting information. That means, the purchase method can provide higher quality accounting information than the pooling of interest method.