Stewardship and Value Relevance in Accounting for the Depletion of Purchased Goodwill

51 Pages Posted: 6 Aug 2013 Last revised: 24 Nov 2018

See all articles by Amir Amel-Zadeh

Amir Amel-Zadeh

University of Oxford - Said Business School

Jonathan Faasse

University of Cambridge - Judge Business School

Kevin Li

University of Cambridge - Judge Business School

Geoff Meeks

University of Cambridge - Judge Business School

Date Written: June 1, 2018

Abstract

Concerns have been raised in the academic and practitioner literatures of accounting that, in general, standard-setters have increasingly neglected stewardship and reliability in pursuit of value-relevance; and then, in particular, that current accounting for the vast sums now expended on purchased goodwill accords too much discretion to manager-agents/stewards, and is weak on verification – allowing them to mislead their investor-principals. This case of purchased goodwill is especially significant because the literatures of finance and industrial organization report that stewardship, or principal-agent, problems are rife in the M&A market. In the light of calls for changed priorities, this paper analyses an experiment with an alternative standard for the depletion of purchased goodwill designed to hold managers to account for every pound of spending on goodwill, and to secure more rigorous verification of goodwill impairments. Triangulated econometric exercises suggest that in the world’s second largest M&A market this alternative, twin instrument, regime secured value-relevant reporting while mitigating stewardship problems.

Keywords: standard-setting; M&A; reliability; value-relevance; stewardship; goodwill

JEL Classification: G14, G18, G34, M41

Suggested Citation

Amel-Zadeh, Amir and Faasse, Jonathan and Li, Kevin and Meeks, Geoff, Stewardship and Value Relevance in Accounting for the Depletion of Purchased Goodwill (June 1, 2018). Available at SSRN: https://ssrn.com/abstract=2306584 or http://dx.doi.org/10.2139/ssrn.2306584

Amir Amel-Zadeh (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Jonathan Faasse

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Kevin Li

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Geoff Meeks

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 (0) 1223 764226 (Phone)
+44 (0) 1223 339701 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
524
Abstract Views
2,629
rank
53,174
PlumX Metrics