Do Chinese Investors Underact to Goodwill
35 Pages Posted: 19 May 2021
Date Written: March 17, 2021
This paper mainly studies goodwill as an intangible asset, and considers that goodwill and sales contain information about enterprise value. The results show that goodwill can predict the future return rate of China's stock market, indicating that investors in China’s stock market underact to information contained in goodwill. In addition, this paper also finds that the organizational structure of the company not only affects the merger behavior of the company, but also affects the predictability of the company's future stock returns. Specifically, in China, goodwill can only predict the future stock returns of non-state-owned enterprises, but not the future stock returns of state-owned enterprises. The difference is not due to the size of the company.
Keywords: Goodwill, Cross-sectional Stock Return Predictability, China’s Market, State-owned Enterprises
JEL Classification: G12, G14, G32, G34
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