Towards an Understanding of the Phases of Goodwill Accounting in Four Western Capitalist Countries: From Stakeholder Model to Shareholder Model

70 Pages Posted: 16 Jul 2007

See all articles by Jacques Richard

Jacques Richard

Université Paris Dauphine

Yuan Ding

China Europe International Business School (CEIBS)

Hervé Stolowy

HEC Paris - Accounting and Management Control Department

Date Written: June 2007

Abstract

The objective of this paper is to illustrate that the change in shareholders' attitude towards firms (from stakeholder model to shareholder model) influences the accounting treatments of goodwill. Our study is based on four countries (Great Britain, the United States, Germany, and France) and covers more than a century, starting in 1880. We explain that all these countries have gone through four identified phases of goodwill accounting, classified as (1) "static" (immediate or rapid expensing), (2) "weakened static" (write-off against equity), (3) "dynamic" (recognition with amortization over a long period) and (4) "actuarial" (recognition without amortization but with impairment if necessary). We contribute several new features to the existing literature on goodwill: our study (1) is international and comparative, (2) spans more than a century, (3) uses the stakeholder/shareholder models to explain the evolution in goodwill treatment in the four countries studied. More precisely, it relates a balance sheet theory, which distinguishes four phases in accounting treatment for goodwill, to the shift from a stakeholder model to a shareholder model, which leads to the preference for short-term rather than long-term profit, (4) contributes to the debate on whether accounting rules simply reflect or arguably help to produce the general trend towards the shareholder model, (5) demonstrates a "one-way" evolution of goodwill treatment in the four countries studied, towards the actuarial phase.

Keywords: Goodwill, Accounting history, Social nature of accounting, Stakeholder/shareholder models, Corporate governance, France, Germany, Great Britain, Japan, United States

JEL Classification: M41, M44, M47

Suggested Citation

Richard, Jacques and Ding, Yuan and Stolowy, Hervé, Towards an Understanding of the Phases of Goodwill Accounting in Four Western Capitalist Countries: From Stakeholder Model to Shareholder Model (June 2007). Available at SSRN: https://ssrn.com/abstract=1000735 or http://dx.doi.org/10.2139/ssrn.1000735

Jacques Richard

Université Paris Dauphine ( email )

Place du Maréchal de Lattre de Tassigny
Paris, 75775
France

Yuan Ding

China Europe International Business School (CEIBS) ( email )

699, Hongfeng Road
Shanghai 201206, Shanghai 201206
China

Hervé Stolowy (Contact Author)

HEC Paris - Accounting and Management Control Department ( email )

Jouy-en-Josas Cedex
France
+33 1 39 67 94 42 (Phone)
+33 1 39 67 70 86 (Fax)

HOME PAGE: http://www.hec.fr/stolowy

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