Research On The Causes And Economic Consequences Of Goodwill Impairment In Merger And Acquisition Of Construction Materials Firm

Since 2014,China’s economic growth has slowed,resulting in overcapacity and resource waste.To optimize resource allocation and improve production efficiency,the State Council and the Securities Regulatory Commission have successively issued many favorable policies to encourage mergers and acquisitions.At one time,mergers and acquisitions transactions exploded,and the scale of goodwill surged.In recent years,with the active promotion of the "dual carbon" initiative,our country has implemented carbon reduction and transformation in key areas such as construction material industry,and strictly controlled new production capacity.What’s more,the weakness of the real estate market and the downstream demand for construction materials also led building materials companies joined the wave of mergers and acquisitions,hoping to expand their business scope and explore the direction of strategic transformation through cross-industry mergers and acquisitions.However,the high consideration paid during mergers and acquisitions,the lack of synergy,and the failure to meet performance commitments have led to frequent goodwill impairment incidents,which have brought a series of problems to the business development of building materials enterprises.This article selects Hainan Ruize,a construction materials industry that produces and sells cement and concrete,as the research case.In 2016,to achieve industrial transformation and diversified development,it acquired Guangdong Lvrun,whose main business is municipal sanitation.The main research issue of this article is the reasons and economic consequences of Hainan Ruize’s twice huge goodwill impairment in 2019 and 2021.In the previous part of the case,this article reviews and combs the literature and theoretical basis of goodwill and its subsequent measurement methods,influencing factors of goodwill impairment,and economic consequences.It also analyzes the current situation of goodwill impairment in the A-share market and the building materials industry and studies its underlying reasons.In addition,in the case introduction section,this article introduces the development status and policy background of Hainan Ruize’s industry and details the entire process of Hainan Ruize’s acquisition of Guangdong Lvrun and the provision of goodwill impairment after the acquisition.In the case analysis section,this article focuses on the causes and economic consequences of goodwill impairment.The reasons for Hainan Ruize to accrue a huge amount of goodwill impairment can be summarized in two major aspects:the external market environment and the enterprise’s factors.The external reasons are mainly the increasingly fierce market competition and rising operating costs;Enterprises themselves are attributed to high premium mergers and acquisitions,poor merger synergies,irrational performance commitments,and earnings management motivations.When analyzing the economic consequences caused by goodwill impairment,this article uses event research methods,financial indicator analysis methods,comparative analysis methods,and EVA analysis methods to study the long-term and short-term economic consequences caused by goodwill impairment.The research findings are as follows:Firstly,goodwill impairment originates from real value decline and earnings management motivation;Secondly,the impairment of goodwill hurts corporate stock prices,but its duration is very limited and the stock price has rebounded rapidly;Third,the impairment of goodwill has led to negative long-term economic consequences,which harm corporate financial performance and economic added value.Based on the above case analysis,this article puts forward targeted suggestions for different entities:First,for mergers and acquisitions enterprises,they should maintain a rational evaluation of the underlying assets before mergers and acquisitions,and reduce high premium mergers and acquisitions;After the merger and acquisition,it is necessary to actively integrate enterprise resources and give full play to synergies.Secondly,the Ministry of Finance and regulatory agencies,are trying to innovate follow-up measurement methods for goodwill,such as adopting a combination of the amortization method and impairment testing method,strengthening the supervision of listed companies,and the disclosure of impairment information.Thirdly,for investors,learning financial knowledge can enhance their understanding and identification of goodwill impairment.singly fierce market competition and rising operating costs;Enterprises themselves are attributed to high premium mergers and acquisitions,poor merger synergies,irrational performance commitments,and earnings management motivations.When analyzing the economic consequences caused by goodwill impairment,this article uses event research methods,financial indicator analysis methods,comparative analysis methods,and EVA analysis methods to study the long-term and short-term economic consequences caused by goodwill impairment.The research findings are as follows:Firstly,goodwill impairment originates from real value decline and earnings management motivation;Secondly,the impairment of goodwill hurts corporate stock prices,but its duration is very limited and the stock price has rebounded rapidly;Third,the impairment of goodwill has led to negative long-term economic consequences,which harm corporate financial performance and economic added value.Based on the above case analysis,this article puts forward targeted suggestions for different entities:First,for mergers and acquisitions enterprises,they should maintain a rational evaluation of the underlying assets before mergers and acquisitions,and reduce high premium mergers and acquisitions;After the merger and acquisition,it is necessary to actively integrate enterprise resources and give full play to synergies.Secondly,the Ministry of Finance and regulatory agencies,are trying to innovate follow-up measurement methods for goodwill,such as adopting a combination of the amortization method and impairment testing method,strengthening the supervision of listed companies,and the disclosure of impairment information.Thirdly,for investors,learning financial knowledge can enhance their understanding and identification of goodwill impairment.