Research On Purchased Goodwill And Enterprise Performance

With the sustainable development of economy,more and more companies are willing to make use of M&A to acquire resources,open markets and deal with competitions.With the boom of M&A,there is a rise in deal volume and values as well as goodwill charge.As a result,topics of goodwill attract more and more attention.Since 2007,Chinese enterprises have been required to disclose the amount of goodwill on a regular basis,and conduct goodwill impairment tests to correct the confirmation of goodwill values.In fact,according to accounting theory,only purchased goodwill created in business combination could be recognized as accounting information system rather than internally generated goodwill.It is also stipulated that purchased goodwill refers to the difference between M&A cost and fair value of the identifiable net assets.Additionally,FASB and IASC proposed that purchased goodwill includes four different aspects,such as self-created goodwill of acquiree,expected synergy,excessive payment and error of evaluation.The first two parts can be recognized as “core goodwill”,which can generate remarkable excess profits,while the latter two cannot.So whether goodwill can gradually improve the performance of mergers is still a question needs to be explored.At the same time,M&As are closely related to the decisions of executive teams in companies.These managers' social capital usually refers to the advantages of resources and information that they can get when making plans.These advantages may help managers evaluate values of target companies more properly,do more-complex thinking in M&A process and promote the final success of synergy.In this situation,goodwill can represent the potential to improve performance.However,it may also push mangers to be under no illusion and pay high premium which finally leads to the irrelevance between goodwill and performance improvement.Based on literature review and empirical research,this paper selected Chinese A-share and non-financial companies which confirmed goodwill in 2012-2015 as study samples.Firstly,the relationship between goodwill and performance was studied.Considering the role of synergy,enterprise performance was further divided into current performance and the performance in next year when doing research.The result indicated that there is a positive correlation between goodwill and both of them.Secondly,this paper introduced an adjustment variable – social capital,and studied from four dimensions: government-related capital,financial capital,academic capital and interlocking capital.It could be found that government-related capital and interlocking capital have a negative influence on the relationship between goodwill and current performance,while financial capital and academic capital make a positive impact on them.It could also be studied that only government-related capital and financial capital have adjustment effects on the relationship between goodwill and the performance in next year.Government-related capital has negative effects and financial capital vice versa.Finally,based on the empirical results,this article put forward five relevant suggestions.They are strengthening the evaluation of target companies,paying attention to the integration process,rationally utilizing social capital,improving the standards of accounting regulations and strengthening supervision.At the same time,targeted at research limitations of this paper,how to conduct future research was proposed as well.