Analysis Of The Factors Affecting The Overvaluation Of Goodwill In Mergers And Acquisitions

In recent years,a lot of companies with high premium M&A have accumulated a large number of goodwill assets in the A-share market and the existence of too much goodwill assets has brought huge risks of impairment.As a result,these companies have been accumulating huge amount of goodwill impairment provision since 2018,which has led to performance changes,damage to investors’ interests and harm to the long-term healthy development of companies and China’s capital market.The core of M&A transactions is transaction pricing.In China’s current practice,transaction pricing and asset valuation conclusions are highly consistent.However,the business of asset evaluation itself has serious deficiencies such as severe dependence on evaluation assumptions,lack of independence,and large subjective operational space.This leads to that the goodwill formed in M&A is not only determined by its essential factor,"the target enterprise excess profitability",but also affected by many other factors.Using the characteristics of asset evaluation in practice,this paper has constructed the concept of "goodwill evaluation value",and deems that based on theoretical analysis and M&A practice,the reasons for the formation of huge goodwill assets in listed companies can be explored by observing "goodwill evaluation value".The core research question in this paper is that which non-goodwill factors affect the overvaluation of goodwill in M&A and how this effect works?Most of the previous studies are based on one or a few influencing factors to explore the effect on the appreciation rate of asset evaluation in M&A,lacking in comprehensive systematic analysis of multiple influencing factors and scientific and rigorous empirical tests.Moreover,previous studies focus on the appreciation rate of asset evaluation rather than the goodwill,and they did not make a clear distinction between essential goodwill factors and non-goodwill factors.The research idea of this paper is that based on the effect of the influencing factors mentioned in previous studies on the appreciation rate of asset evaluation,the paper empirically analyzes the three non-goodwill factors payment methods,related party transactions and performance commitments to goodwill evaluation value in the M&A by using the major asset restructuring data of listed companies in China’s GEM in 2016-2017,and finally draw conclusions with the case in-depth analysis.The innovation of this paper lies in directly taking the evaluation of goodwill asset as the research object,and integrating multiple non-goodwill influential factors to goodwill evaluation in M&A in the empirical tests.Conclusions:In the M&A of China’s GEM listed companies,the three non-goodwill factors of share-based payment,related party transactions and performance conmitments contain "high-premium M&A motives".Due to the misunderstanding of paying too much attention to the evaluation process while neglecting the trading game,these motives evolve into the“motivation of overestimating the underlying asset,.Consequently,the two parties in the transaction then induce,force or deceive the evaluation agencies and evaluators to achieve the overvaluation of the underlying asset through the maneuverability of the income method,deviating the goodwill valuation value from the essence of goodwill,and ultimately leading to the bubble of goodwill assets of listed companies.The research value and practical significance of this paper:It is helpful to explain the root causes of a large number of goodwill assets in the A-share market,analyze the quality of goodwill accounting information,and help investors to more clearly recognize the true scale of goodwill of a company.In practice,the conclusions of this paper are beneficial to providing reference for the reform and improvement of China’s accounting policies and capital market M&A trading system.