واکنش بازارهای امنیتی به خرید کسب و کار ترکیبی در تاریخ اعلامی درآمد نخست

Accounting for purchased goodwill in mergers and acquisitions has been a hotly debated issue for many years because of the increasingly large impact of goodwill amortization on the reported earnings of acquiring firms and its implications for the subsequent performance of the combined entity. There is evidence that top management of firms seeking to acquire other companies attempts to avoid purchase accounting when possible to avoid the hit to earnings associated with goodwill amortization. However, since there may be no economic cash flows associated with the goodwill amortization, it is not immediately apparent that the required goodwill amortization has a negative effect on stock prices. This study examines the extent to which increases in purchased goodwill are negatively associated with the security prices of acquiring companies at the time of the first earnings announcement following the completion of the merger. The results indicate that firms exhibit negative abnormal returns around the first quarterly earnings announcement date following a purchase business combination and that the size of the reaction is negatively related to the amount of goodwill associated with the purchase. Thus, the results support the concerns expressed by the financial press that reporting large amounts of goodwill is bad news at the time of earnings announcements. These results are not inconsistent with the findings of earlier work suggesting that goodwill is positively valued by the market. Rather, our results suggest that while goodwill may be viewed positively as an asset, the earnings impact of the amortization of goodwill is bad news to the market. Accounting for purchased goodwill in mergers and acquisitions has been a hotly debated issue for many years because of the increasingly large impact of goodwill amortization on the reported earnings of acquiring firms and its implications for the subsequent performance of the combined entity. Top management of firms seeking to acquire other companies attempts to avoid purchase accounting when possible to avoid the hit to earnings associated with goodwill amortization (Lys and Vincent, 1995). However, since there may be no economic cash flows associated with the goodwill amortization, it is not immediately apparent that the required goodwill amortization has a negative effect on stock prices.1 On the other hand, there is substantial anecdotal evidence to suggest that managers believe that goodwill amortization hurts their company's performance and act to minimize its effect (e.g., Laderman 1989, Wechsler 1989a, Linden 1990, McGoldrick 1990 and McGoldrick 1997). A recent article by Beth McGoldrick in the Institutional Investor discusses the efforts made by management of acquiring firms to structure business combinations as poolings of interest in order to avoid the negative earnings impact associated with goodwill amortization noting that, When Paramont Communications failed in its $11 billion bid to purchase Time in 1989, one often cited reason was that the deal would have included $9.2 billion of accounting goodwill. This staggering load was expected to depress the earnings of the acquiring company—and its stock price—for years to come (McGoldrick, 1997, p. 145). In another example, Gillette Company acquired Duracell International Inc. in a stock-swap intentionally structured as a pooling-of-interests. A report of the deal emphasized how accounting rules seemed to motivate management's behavior: Gillette executives deliberately structured the deal to cater to Wall Street's simplistic emphasis on reported earnings per share. They chose an accounting treatment that would appeal to the Street—even though it may cost shareholders more money. So important was the accounting strategy that one Gillette adviser says the company would have walked away had Duracell insisted on a cash deal (Maremont, 1996, p. 36). Proponents of the perception that the required amortization of goodwill is detrimental to company valuation also have asserted that it is affecting the international competitive ability of U.S. firms bidding against foreign firms (An Edge to Foreign Buyers?, 1988; Dieter 1989, Wechsler 1989b and Davis 1992). However, despite the concerns voiced by the financial press, no empirical evidence has substantiated that the noncash write-off to earnings caused by goodwill amortization negatively impacts stock prices. Davis (1996)(p. 58) reviews extant literature and concludes that, “There is thus no reason for firms to hide goodwill and, as yet, no conclusive evidence that the non-cash reduction in reported income caused by goodwill amortization harms stock prices.” This study examines this issue. Specifically, we examine the extent to which increases in purchased goodwill are negatively associated with the security prices of acquiring companies at the time of the first earnings announcement following the completion of the merger. The results indicate that firms exhibit negative abnormal returns around the first quarterly earnings announcement date following a purchase business combination and that the size of the reaction is negatively related to the amount of goodwill associated with the purchase. Thus, the results support the concerns expressed by the financial press that reporting large amounts of goodwill is bad news at the time of earnings announcements. These results are not inconsistent with the findings of earlier work suggesting that goodwill is positively valued by the market. Rather, our results suggest that while goodwill may be viewed positively as an asset, the earnings impact of the amortization of goodwill is bad news to the market. The remainder of this article is structured as follows. In the next section, previous literature examining the market response to goodwill disclosures is examined. Then, the research hypotheses are developed. The fourth section discusses the methodology and presents the results. The final section summarizes the results and presents conclusions.

Employing a sample of 116 acquisitions occurring during the years 1984–1990, we found a negative association between increased goodwill from a purchase combination and abnormal returns of acquiring firms. Owing to the nature of the dispersion of goodwill information into the market across time rather than on one day, the negative association is reflected in monthly abnormal returns, rather than daily abnormal returns. At the first quarterly earnings announcement after the acquisition effective date, the market responds negatively, and this time there is a negative association between abnormal returns and the change in goodwill. Consequently, it appears that a negative reaction occurs on the first earnings announcement date in response to the book reduction in reported earnings from the goodwill amortization. Taken together, this evidence supports the hypothesis that the market considers the increase in goodwill when valuing firms involved in purchase combinations and responds negatively to the earnings impact of goodwill amortization.15 The results from this study support the contentions of managers and the financial press that stock prices are adversely impacted by the earnings impact of goodwill amortization following a purchase combination with large amounts of goodwill. Consistent with the results of Hand (1990) and Shleifer and Summers (1990), it appears that market participants responded to the earnings impact of the goodwill amortization rather than to its direct cash flow impact suggesting that in business combinations form may be as important as the substance of the transaction.Accounting Trends and Techniques. 41-45 Editions. American Institute of As 1987 and An Edge to Foreign Buyers? Mergers and Acquisitions 22 1988