Research On Reasons And Risks Of Zeus Entertainment’s Large Goodwill Impairment

With the continuous development of Internet technology and the continuous upgrade of people’s consumption level,games have become a common way of relaxation in people’s leisure life.In recent years,the development of the game industry is changing rapidly,with continuous innovation and breakthroughs in terms of market size,products’ quality and quantity.China’s game companies have also started a wave of M&A.Due to the small proportion of the visible assets of game companies and the bubbles in the market,the scale of M&A in the game industry is getting larger and larger.Many companies have accumulated huge amounts of goodwill in this way and generated hidden risks of enormous goodwill impairment.This paper selected Zeus Entertainment,a listed company in the game industry,as the research object.First,it introduced the research results of previous scholars on the reasons,risks and regulations of goodwill impairment.The paper also summarized the theories related to M&A and goodwill impairment.Secondly,the background of Zeus Entertainment’s series of M&A and the accumulation of goodwill from 2015 to 2016 were introduced.Then,the paper analyzed the reasons and risks of large amount of goodwill impairment.Finally,the experiences and inspirations learned from the case were summarized.Through this study,the main conclusions are as follows:(1)There are many factors that affect the large amount of goodwill impairment of Zeus Entertainment.Firstly,in 2018,China’s game industry was affected by the implement of version control and stricter supervision.Secondly,the company also had problems of insufficient of R&D,and inadequate integration.Thirdly,the evaluation of M&A may not be in line with the actual situation.Finally,managers may adjust the goodwill impairment as a means of earnings management.(2)The risks of large goodwill impairment include many aspects.From the perspective of investors,the news of large goodwill impairment is likely to cause the stock price to drop rapidly;earnings management will interfere with the market investors to make correct decisions.From the perspective of company,the large impairment of goodwill will affect the value of the company;the subsequent financing be negatively affected due to the decline of stock price and the downgrade of the credit rating;in addition,the rationality of the company’s asset structure will be reduced,the asset liability ratio will surge,the long-term solvency will be seriously insufficient,and the future sustainable operation ability will be uncertain.(3)In terms of the management and control of large goodwill impairment,the regulatory authorities should strictly review and supervise the M&A cases with great goodwill impairment risk like Zeus Entertainment.Also,we should constantly improve the evaluation criteria and strengthen the professionalism and independence of the evaluation institutions and assessors.Zeus Entertainment should also establish and improve the internal decision-making and approval procedures of M&A,and strengthen the information disclosure related to goodwill impairment.Based on the analyses above,this paper put forward the following experiences: First,companies should pay equal attentions to external expansion and intrinsic development,especially for the high-tech companies,investment on R&D is particularly important.Secondly,while considering financing structure of M&A,the company should keep a stable capital structure to cope with the uncertainties in the industry and capital market.Thirdly,they can start M&A aiming at small companies,which would be easy for integration and helpful to control risks of goodwill impairment and business loss in the future.