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Did the goodwill accounting standard impose material economic consequences on Australian acquirers?

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  • doi: 10.1111/j.1467-629x.2007.00246.x

  • The authors gratefully acknowledge the helpful comments of Keith Alfredson, Stewart Jones, Phil Shane, Nasser Spear, Don Stokes, Peter Wells, Jilnaught Wong, Norman Wong and Julian Yeo as well as participants at the Accounting and Finance Association of Australia and New Zealand 2006 Conference and seminars at Curtin University of Technology, the University of Melbourne, the University of Auckland, the University of Sydney, University of Technology Sydney and Monash University. Initial discussions with Philip Brown have been instrumental to the development of the research ideas. Capable research assistance by Effiezal Abdul Wahab is appreciated. The usual disclaimer applies.

Abstract

This research explores the empirical association between takeover bid premium and acquired (purchased) goodwill, and tests whether the strength of the association changes after the passage of approved accounting standard AASB 1013 in Australia in 1988. AASB 1013 mandated capitalization and amortization of acquired goodwill to the income statement over a maximum period of 20 years. We use regressions to assess how the association between bid premium and acquired goodwill varies in the pre-AASB and post-AASB 1013 periods after controlling for confounding factors. Our results show that reducing the variety of accounting policy options available to bidder management after an acquisition results in a systematic reduction in the strength of the association between premium and goodwill.

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