Does recognized goodwill function as an economic resource?

Abstract

This study examines whether recognized goodwill functions as an economic resource by analyzing newly recognized goodwill and future operating performance among Japanese listed firms from 2011–2024. Using hand-collected disclosure data and regressions with firm and year fixed effects, this study finds a negative within-firm association between newly recognized goodwill and future cumulative EBITDA, generally more pronounced over longer horizons and tending to be stronger among larger acquirers. These results question the premise that recognized goodwill functions as an economic resource. Excluding firm fixed effects reverses the association, underscoring the importance of within-firm identification.

Keywords: Goodwill, Future profitability, EBITDA, Mergers and acquisitions, Japan

JEL Classification: M41, G34