Market Valuations of Bargain Purchase Gains: Are These True Gains under IFRS?

Forthcoming, Accounting and Business Research

49 Pages Posted: 28 May 2019

See all articles by Marwa Elnahass

Marwa Elnahass

Newcastle University Business School

Leonidas C. Doukakis

University of Lausanne, HEC

Date Written: April 30, 2019


This study investigates stock market valuations for bargain purchase gains (BPGs) in the context of International Financial Reporting Standards (IFRS) between 2005–2014. Motivated by the increased frequency and high concentration of BPGs in Europe, we study a sample of acquirers listed on the London Stock Exchange to assess the value relevance of BPGs (a) under discrepant disclosure practices (i.e., disclosure versus non- disclosure of the reasons for the gains), (b) before and after the revision of IFRS 3, and (c) considering different income classifications for BPGs (operating or non-operating earnings). BPGs, on average, are not significantly valued by the stock market. However, the post-IFRS 3 revision period, marked by stricter measurement criteria and additional disclosure requirements, witnessed a significant shift in firm valuations. BPGs for which the reason for the gain is disclosed are positively valued only in the post-IFRS 3 revision period. BPGs are consistently perceived as value irrelevant for those firms which fail to comply with mandated IFRS 3 disclosure requirements regarding the reason for the gain. Finally, BPGs classified as a component of non-operating income with sufficient note disclosure on the reason for the gain are significantly associated with prices and returns.

Keywords: Bargain purchase gains; Negative goodwill; IFRS 3 revision; Accounting disclosure; Value relevance

JEL Classification: M40, M41, M49

Suggested Citation

Elnahass, Marwa and Doukakis, Leonidas C., Market Valuations of Bargain Purchase Gains: Are These True Gains under IFRS? (April 30, 2019). Forthcoming, Accounting and Business Research, Available at SSRN: or

Marwa Elnahass

Newcastle University Business School ( email )

5 Barrack Road
Newcastle University Business School
Newcastle Upon Tyne, NE1 4SE
United Kingdom

Leonidas C. Doukakis (Contact Author)

University of Lausanne, HEC ( email )

Unil Chamberonne, Batiment Anthropole
Lausanne, 1015

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