Goodwill,Cashflows And Stock Price Crash Risk

Since 2012,with the conversion in China's business cycle and the adjustment of the industrial structure,the role of mergers and acquisitions in the development of enterprises has become increasingly prominent.M&A premiums have become the normal phenomenon in China's capital market.Corporate goodwill assets have continued to increase,and stock prices have risen.According to the annual reports issued by listed corporates,China's listed companies have accumulated total goodwill of more than 1.3 trillion yuan,12 companies had goodwill of more than 10 billion yuan.In terms of the proportion of goodwill assets,26 companies' goodwill values exceed their net asset value.Since 2018,the frequent occurrence of goodwill impairment has caused a violent market shake and also attracted widespread attention from regulators and academia.Existing literature research mainly focuses on explaining the connotation and definition of goodwill as well as its production mechanism and the impact of goodwill on the company's financial performance.This article focuses on the impact of goodwill and goodwill impairment losses on the risk of stock price crashes.Using the data of Chinese listed companies from 2007 to 2018,this article empirically finds that the increase in goodwill assets will increase the risk of future stock price crashes,and this effect is significant for high leverage companies and non-state-owned background companies.Moreover,cash flow caused a moderation effect on the stock price crashes mechanism.At the same time,the impact of goodwill on the risk of stock price crash is non-linear.Only when the goodwill assets exceed a certain threshold will the risk of stock price crash significantly increase.Based on the above research,this article also puts forward corresponding suggestions to regulators,enterprises and investors.This paper examines the follow-up effects of goodwill in mergers and acquisitions from the perspective of evaluating the risk of collapse.It innovatively incorporates cash flow indicators,classifies and studies the different roles played by different cash flows in the influence mechanism of goodwill.It not only enriches the existing literature,but also has certain reference significance for investor's investment decision,enterprise's operation decision,and regulatory-level financial risk control decision.