Motivation Analysis Of Radical Impairment Of Goodwill

In recent years,under the background of industrial restructuring,upgrading of traditional industries and integration of emerging industries in China,the M&A with high price have occurred frequently among the listed companies.However,after this wave of M&A,the risk of goodwill has gradually occurred.With the large amount of impairment in many listed companies,the risk of goodwill has begun to attract the attention of the capital market and regulatory authorities.The Chinese accounting standards promulgated in 2006 changed the subsequent measurement of goodwill from amortization to impairment test,giving the company discretion about the time and amount of impairment.Besides,the results of impairment test were affected by the professional judgments of assessors.As a result,the impairment of goodwill may be used for earnings management.Under such a realistic background,it is of great important to study the motivation of radical impairment of goodwill in the listed companies,which will be helpful for improving the subsequent measurement and information disclosure of goodwill and promoting the healthy development of the capital market.This paper selects China High-tech Group as the case.This company belongs to the real estate industry,which has a large amount of acquisitions and impairment of goodwill,and the impairment of goodwill in this company is with radical features.This paper combines the basic theories with the existing research results,and then explores the motivation of radical impairment of goodwill in China High-tech Group.Firstly,the event study was used to test the short-term market reaction of the disclosure of impairment of goodwill,and then its result denied the motivation to transmit a signal to the market,which indicates the increases of cash flow in future.Secondly,after analyzing the specific operating performance of China High-tech Group,it found that the daily operations of this company have suffered losses.Therefore,this paper believes that there is a motivation for earnings management in this company's radical impairment of goodwill.Then,this paper further explored why China High-tech Group conducted earnings management and found that the company lacks sustained and stable income in the next few years.At the same time,it also involves multiple lawsuits.If it loses,it needs to pay high compensation,which may lead to losses and then bring a risk of debt contract default and Special Treatment in the security market.Therefore,this paper believes the motivation for radical impairment of goodwill in China High-tech Group is to manage earnings in bad years,thus releasing risk at one time and alleviating its pressure for future performance.This paper explores the impairment of goodwill from the view of motivation,expanding the current domestic researches on goodwill;furthermore,it analyzes the current status of goodwill and its impairment in the listed companies,thus enriching the statistical data of M&A and goodwill and proposing some targeted improvement suggestions for the relevant accounting standards and information disclosure in China.However,this paper also has some shortcomings: Firstly,the results of event study cannot completely exclude the interference of other information,and there are also some subjective factors when choosing the estimation period and the window period.Secondly,this paper only selects one case to study,so the conclusions cannot be applied to all listed companies.