Abstract

http://ssrn.com/abstract=930725
 
 

References (15)



 
 

Citations (10)



 


 



Accounting Discretion and Purchase Price Allocation After Acquisitions


Ivy Zhang


University of Minnesota - Twin Cities

Yong Zhang


Hong Kong Polytechnic University

May 29, 2007

AAA 2007 Financial Accounting & Reporting Section (FARS) Meeting Paper
HKUST Business School Research Paper No. 07-04

Abstract:     
This study investigates acquirers' allocation of purchase price between goodwill and identifiable intangible assets upon the completion of acquisitions. SFAS 142 replaces goodwill amortization with periodic impairment tests based on fair value estimates, while most identifiable intangible assets are still amortized over finite useful lives. As a result of the new differential accounting treatment, we predict and find that managers allocate more purchase price to goodwill post SFAS 142 to reduce amortization expenses when they anticipate greater discretion in future goodwill assessment to avoid reporting impairment. We also find that older CEOs who likely care more about short-term accounting earnings and bonus record more goodwill to avoid amortization expenses. The results are robust to controls for the economic determinants of the allocation. The explanatory power of acquirer/CEO characteristics that capture managers' reporting incentives is greater than that of the economic determinants. In contrast, the same variables cannot explain the purchase price allocation prior to SFAS 142. The findings suggest that unverifiable accounting measures likely deviate from the underlying economics as a result of management exploiting their accounting discretion. We also explore the role of external appraisers in the post SFAS 142 period and find mixed results.

Number of Pages in PDF File: 58

Keywords: SFAS 142, Goodwill, intangible valuation, accounting discretion, fair value accounting

JEL Classification: M41, M43, M44, G24, G34

working papers series





Download This Paper

Date posted: September 15, 2006  

Suggested Citation

Zhang, Ivy and Zhang, Yong, Accounting Discretion and Purchase Price Allocation After Acquisitions (May 29, 2007). AAA 2007 Financial Accounting & Reporting Section (FARS) Meeting Paper; HKUST Business School Research Paper No. 07-04. Available at SSRN: http://ssrn.com/abstract=930725 or http://dx.doi.org/10.2139/ssrn.930725

Contact Information

Ivy Zhang (Contact Author)
University of Minnesota - Twin Cities ( email )
19th Avenue South
Minneapolis, MN 55455
United States
Yong Zhang
Hong Kong Polytechnic University ( email )
Hung Hom
Hung Hom
Kowloon, AK HK HK
Hong Kong
Feedback to SSRN


Paper statistics
Abstract Views: 7,189
Downloads: 1,407
Download Rank: 6,536
References:  15
Citations:  10

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.312 seconds