What drives the allocation of the purchase price to goodwill?

Martin Bugeja, Anna Loyeung
2015 Journal of Contemporary Accounting and Economics  
This study examines the proportion of the purchase price allocated to goodwill after the successful acquisition of a publicly listed firm. Using hand collected data we document that 42% of acquirers record a nil amount for goodwill. We find that the amount allocated to goodwill is generally unrelated to target firm economic characteristics. In contrast, consistent with managerial opportunism we find a positive association between the use of accounting based bonus plans to compensate acquiring
more » ... rm CEOs and the amount allocated to goodwill. The amount allocated to goodwill also increases after Australia adopted IFRS which no longer required goodwill to be systematically amortised. Other variables associated with goodwill recognition include: the acquiring firm's leverage, the takeover premium, whether the target and the bidder operate in the same industry, existing goodwill in the target firm before the takeover announcement and the method of payment used in the acquisition. JEL Classifications: G34, M40 and M41 . Telephone + 61 2 9514 3743, fax + 61 2 9514 3669.
doi:10.1016/j.jcae.2015.10.002 fatcat:d7m6oi7eivfyhidrebomacun5a