Accounting for Goodwill in Public vs Private Deals

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Transcription:

ACKNOWLEDGEMENT
We are thankful to our supervisor Peter Edlund Frii for his continual support guidance and
constructive criticism during our thesis writing process We would also like to thank Statistics
associate professor Priyantha Wijayatunga for this advice We are especially grateful to our families
and friends for their support and motivation during this time Finally we hope that our study will
be pleasurable to read and will give new insights in the field of goodwill accounting
Christian Kim Susmita Mandal
Ume School of Business Economics
May 2016
ABSTRACT
In 2001 the FASB Financial Accounting Standard Board introduced accounting regulations
SFAS 141 and SFAS 142 to improve the relevance representational faithfulness and
comparability of financial reporting The new standards have profoundly changed the
accounting for business combinations and goodwill under US GAAP by requiring reporting
entities to no longer amortize goodwill over its expected useful life but to test for impairment
annually However the new regulation has met sharp criticism for creating a scope for high
levels of managerial discretion which may be exercised opportunistically in the accounting for
goodwill This study examines whether the proportion of purchase price allocated to goodwill
differs between public and private acquisitions We try to answer this question by carrying out
a quantitative study on 481 observations between the period of 2001 to 2005 by studying the
relationship between acquirer type Public vs Private and target firm characteristic on
goodwill allocated and we find the following results 1 Public acquirers allocate higher levels
of goodwill in comparison to private acquirers 2 Market to book values of private target firms
are not positively correlated with recorded goodwill levels
Key Words Goodwill allocation purchase price allocation earnings management public
acquirer private acquirer target characteristics
TABLE OF CONTENT
1 INTRODUCTIORY CHAPTER 1
1 1 Problem Background 1
1 2 Subject Choice 2
1 3 Theoretical Background 2
1 4 Related Literature 3
1 5 Research Gap Question 5
1 6 Purpose of Study 6
1 7 Outline 6
2 0 METHODOLOGY 7
2 1 Ontology 7
2 2 Epistemology 7
2 3 Research Approach 8
2 4 Research Design 9
2 5 Preconceptions 9
2 6 Literature Search 10
2 7 Choice of Theory 10
2 8 Ethical Considerations 11
3 THEORETICAL FRAMEWORK 13
3 1 Background 13
3 1 1 Purchase Price Allocation 13
3 1 2 Subsequent Measurement 14
3 2 Theories of Goodwill 16
3 2 1 Conceptual Components of Goodwill 17
3 2 3 Goodwill Synergistic Potentials 17
3 2 4 Goodwill and Growth Opportunities 18
3 3 Goodwill Accounting and Earnings Management 18
3 3 1 Earnings Management Incentives in PPA 18
3 3 2 Earnings Management in Public vs Private Firms 20
3 3 3 1 Managerial Ownership 21
3 3 3 2 Agency Problems 21
3 3 3 3 Information Asymmetry 22
3 4 Hypothesis Development 22
4 PRACTICAL METHODOLOGY 25
4 1 Data Sample Description 25
4 1 1 Data Collection 25
4 1 2 Dependent Variable 26
4 1 3 Independent Variables 26
4 2 Regression Model Specification 27
4 2 1 Ordinary Least Squares Regression 28
4 2 2 Regression with Binary Variables 28
4 3 Economic Model 29
5 RESULTS 30
5 1 Descriptive Statistics 30
5 2 Correlation Analysis 32
5 3 Regression Analysis 33
6 TESTING VERIFICATION OF RESULTS 36
6 1 Statistical testing of Regression Model 36
6 1 1 Absence of Multicolliniarity 36
6 1 2 Residual Normality 36
6 1 3 Absence of Heteroscedasticity 36
6 2 Subsample Analysis 37
7 DISCUSSION 39
7 1 Discussion of Results 39
7 2 Reliability 41
7 3 Internal External Validity 42
8 CONCLUSION 43
8 1 General Conclusion 43
8 2 Theoretical Contributions 44
8 3 Practical Contributions 44
8 4 Societal Contributions 45
8 5 Limitations and Suggestions for Future Research 45
LIST OF REFERENCES I
APPENDIX A Main Regression IV
APPENDIX B Subsample VI
LIST OF FIGURES
Figure 1 Types of Acquirer and Types of Target Firm 5
Figure 2 Purchase Price Allocation Procedures 14
Figure 3 Two Step Goodwill Impairment under SFAS 142 15
Figure 4 Research Question Hypotheses 24

. relationship between acquirer type Public vs Private and target firm characteristic on goodwill allocated and we find the following results 1 Public acquirers allocate higher levels of goodwill in comparison to private acquirers 2 Market to book values of private target firms

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