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Does goodwill pressure drive business restructuring based on subsidiary disposal?

Author

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  • Xu, Jingjing
  • Huang, Haijie
  • Lee, Edward
  • Petaibanlue, Jirada

Abstract

This study investigates whether the existence of goodwill influences firms to remove subsidiaries from consolidation to reduce the pressure from potential impairment loss. Using a sample of Chinese A-share listed companies between 2007 and 2018, we find that the magnitude of goodwill is associated with firms' decisions to dispose of their merged subsidiaries. Also, the likelihood of disposing of subsidiaries is higher among firms with greater impairment probability due to a larger amount of goodwill and lower profitability. Additionally, we observe that firms may simultaneously employ both disposal strategies and impairment write-offs to reduce goodwill pressure. In the cross-sectional analyses, we find that the effect varies between SOEs and non-SOEs. Our findings present the real effect of goodwill impairment on companies' decision-making and provide insights into the impact of accounting practices on firms' investment strategies.

Suggested Citation

  • Xu, Jingjing & Huang, Haijie & Lee, Edward & Petaibanlue, Jirada, 2023. "Does goodwill pressure drive business restructuring based on subsidiary disposal?," International Review of Financial Analysis, Elsevier, vol. 86(C).
    • Handle: RePEc:eee:finana:v:86:y:2023:i:c:s1057521923000273
    DOI: 10.1016/j.irfa.2023.102511
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    More about this item

    Keywords

    Goodwill; Goodwill impairment; Disposal of subsidiaries; IAS 36; M&A;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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