Research On The Impact Of Goodwill Impairment On Stock Price Changes

Merger and reorganization is a common expansion method adopted by many enterprises today.As the world’s largest economy,merger and reorganization has an increasingly significant impact on China’s capital market.With the arrival of merger and acquisition boom after 2014,there are more and more merger and acquisition events in a stock market,and the accumulated goodwill is increasing.Premium mergers and acquisitions happen from time to time,and the formation of huge goodwill is also common,which often foreshadows the later goodwill impairment.Once the performance of the acquired party deteriorates,the acquirer embellishes the financial statements for the smoothing of earnings,and it becomes a routine means to set aside a large amount of goodwill impairment.The provision of large-scale goodwill impairment will make the performance volatile.This bad news will affect the investment decision under the signaling mechanism,and even trigger the "selling wave" to cause stock price volatility,affecting the stability of the stock market.In order to more accurately analyze the relationship between goodwill impairment and stock price changes,and put forward reasonable suggestions on this impact,this paper first conducted an empirical study and further improved the residual income model to obtain the model required in the empirical study.The empirical results show that combined goodwill has a significant positive effect on stock price;Goodwill impairment has a significant negative effect on stock price.The conclusion is still significant after robustness test of the regression results.On the basis of empirical research,the event of H Company merging R Company is introduced.Firstly,it introduces the situation of the merger and acquisition parties,the background of the merger and acquisition,the formation of goodwill and the impairment process,and then analyzes the impact of goodwill impairment on the stock price of the merger and acquisition party based on the K-chart.In terms of short-term impact,the event study method is used to analyze the impact of goodwill impairment events on stock prices by calculating the excess rate of return and cumulative excess rate of return during the event window.In terms of long-term impact,financial indicators are used to analyze,and the long-term impact of goodwill impairment events on stock price is analyzed by calculating the financial indicators of H Company in recent six years.Goodwill impairment mainly causes stock price fluctuations by affecting performance.The impact mechanism is as follows:goodwill impairment will lead to a decline in net profit,followed by a decline in the company’s overall performance.This negative signal will lead to a decline in stock holders’ investment expectations and a decline in stock prices.This paper combines empirical research with case analysis to conclude that goodwill impairment will cause stock price decline.This economic consequence will not only make creditors and investors wait and see,reduce their investment in the company and further deteriorate the company’s performance,but also cause the stock market to be more unfavorable to investment,and the healthy development of the stock market will face great challenges.Therefore,the macro-control should be strengthened on this phenomenon.Firstly,deal with it from the source,strengthen quality assessment of M&A scientifically,and reduce the occurrence of premium M&A;Second,we should strengthen the supervision of the measurement of goodwill impairment,reduce the subjectivity of the provision of goodwill impairment,and put an end to stock price changes caused by goodwill impairment;Third,improve the quality of information disclosure,timely and accurately disclose information related to goodwill impairment;The fourth investor to improve the ability of investment identification,reduce the emergence of goodwill impairment caused by stock selling.Hope to further promote the healthy development of stock market through research.