The Research Of Relationships Between Purchased Goodwill And Financial Performance

In recent years, with the frequent mergers between China’s listed companies, the purchased goodwill in the proportion of total assets of the enterprise is becoming bigger, which reflects the importance of it for the enterprise gradually. The IASC recognize that the purchased goodwill contains four parts:the self-created goodwill of the acquired enterprise, the expected synergies, overpay and error of assessment. Among them, the self-created goodwill and expected synergies belong to the "core goodwill", which can bring excess returns for the enterprises; while the overpay and error of assessment belong to the "non-core goodwill", which aren’t related with the excess returns. So, if the purchased goodwill of the China’s listed companies can bring the corresponding economic interests for the enterprises?To answer the above question, this paper select the A shares listed companies on the main board in china, and which disclosure the purchased goodwill on the consolidated financial statements as the research object, to test the relationship between purchased goodwill and the financial performance. Considering the function of the synergies may delay, this paper will research the relationship between purchased goodwill and the current, one period lagged, two period lagged ROA respectively in the specific research design, and then found that the purchased goodwill has significant positive correlation with the current ROA, has a positive effect on the one period lagged ROA, and has no significant correlation with the two period lagged ROA. This suggests that the purchased goodwill can improve the current financial performance for the enterprises, and also has the effectiveness to improving the performance in the one lagged period, but this effectiveness can’t continue to the two period lagged performance.Then, because of the serious principal-agent problem and the adequate resources in state-owned enterprises, their management and investment are less efficient than the non-state enterprises. According to the state, this paper considers that the purchased goodwill in non-state enterprises has more "core goodwill", and the positive relationship with performance is more significant than the state-owned enterprises’. By grouping the study sample to state-owned and non-state enterprises, and regress the purchased goodwill with performance respectively, this paper found that the purchased goodwill in non-state enterprises has significant positive relationship with performance, and the purchased goodwill in state-owned enterprises has no significant relationship with performance, to verify the hypothesis in the paper.In order to have a deeper research on how the purchased goodwill impact the financial performance, this paper break the ROA into ROS and RAT, by regressing the purchased goodwill with the current, one period lagged, two period lagged ROS and RAT respectively, and then found that the purchased goodwill can improve the current ROS, but also slow the current RAT; the purchased goodwill has no significant relationship with one period lagged ROS, but can improve the one period lagged RAT; the purchased goodwill has no significant relationship with both two period lagged ROS and RAT. This shows that the purchased goodwill through improving the ROS in the current and improving the RAT in the one lagged period to improving the whole financial performance.Finally, this paper give some suggests through the aspects of mergers, state-owned assets supervision, assets evaluation and the disclosure and supervision of goodwill according to the empirical research results.