Research On The Impairment Of Goodwill In The Merger And Acquisition Of Wolong Electric Yinchuan Transformer Co.,Ltd. By Red Phase INC.

With the support of China’s merger and acquisition policies,the merger and acquisition market develops rapidly.In order to achieve the purpose of rapidly promoting their own development,many companies carry out mergers and acquisitions with high premiums again and again,which leads to the accumulation of goodwill amount of enterprises,and the risk of goodwill impairment of enterprises is further increased.In the current market,many enterprises have performance losses due to the provision of goodwill impairment,which seriously hinders the development of enterprises.Power equipment industry is one of the important industries in China,by the end of 2021,there are 291 listed companies in the power equipment industry,with total assets reaching 3.6trillion yuan and net profits reaching 140 billion yuan.Therefore,this paper selects Red phase INC.in the power equipment industry as the case study object to analyze the specific situation of its goodwill impairment for the merger and acquisition of Wolong Electric Yinchuan Transformer Co.,Ltd..This paper first studies the power equipment industry,by analyzing the change trend of industry scale and goodwill from 2016 to 2021,it is found that the number and market value of listed enterprises in this industry are increasing;The amount of goodwill impairment in this industry has also been increasing,but the change of total goodwill shows a trend of rising first and then falling.Secondly,this paper analyzes the economic consequences brought by the goodwill impairment of Red phase INC.from the stock price,financial and non-financial aspects,and finds that after the official release of the impairment news,it plays a role in promoting the stock price,but brings a negative impact on the financial and non-financial aspects.Finally,the reasons for the impairment provision of Red phase INC.in 2021 are analyzed,and the main reasons are considered as follows:(1)The acquisition of Wolong Electric Yinchuan Transformer Co.,Ltd.by Red phase INC.at a high premium generates a huge amount of goodwill;(2)There is no good business integration after the merger and acquisition,which fails to give full play to the synergistic effect;(3)The company may have earnings management motivation,and one-time provision of goodwill impairment is conducive to improving the performance of the next year.In order to avoid the negative impact of goodwill impairment,this paper puts forward suggestions from three perspectives: enterprises,regulators and investors.Enterprises should conduct relevant investigation before M&A,reasonably set performance commitment and commitment period,and pay attention to post-merger business integration;Regulators should establish institutionalized standards and procedures,improve the disclosure of goodwill impairment information,and increase the punishment of relevant personnel;Investors should strengthen professional learning and improve risk awareness.