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Is the Selection of the Amortization Period for Goodwill a Strategic Choice?

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  • Henning, Steven L
  • Shaw, Wayne H

Abstract

This study examines whether the choice of amortization life for purchased goodwill is predictive of the firm's post-acquisition earnings levels, given that shorter lives could lead to a dilution in earnings. Our findings support this interpretation. Further, consistent with Andrade (2001), we demonstrate a link between post-acquisition earnings changes and stock performance. These results suggest that the amortization life chosen is a reliable predictor of the success of the acquisition both in terms of earnings changes and future stock performance. These findings are relevant since the information concerning the life chosen was eliminated by the adoption of SFAS No. 142. Copyright 2003 by Kluwer Academic Publishers

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  • Henning, Steven L & Shaw, Wayne H, 2003. "Is the Selection of the Amortization Period for Goodwill a Strategic Choice?," Review of Quantitative Finance and Accounting, Springer, vol. 20(4), pages 315-333, June.
    • Handle: RePEc:kap:rqfnac:v:20:y:2003:i:4:p:315-33
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    Citations

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    Cited by:

    1. Peter M. Johnson & Thomas J. Lopez & Trevor L. Sorensen, 2021. "Did SFAS 141/142 improve the market’s understanding of net assets, goodwill, or other intangible assets?," Review of Quantitative Finance and Accounting, Springer, vol. 56(3), pages 891-915, April.
    2. Sun, Li, 2016. "Managerial ability and goodwill impairment," Advances in accounting, Elsevier, vol. 32(C), pages 42-51.
    3. Tyrone M. Carlin & Nigel Finch & Khairil Faizal Khairi, 2010. "FRS36 and post‐transition compliance quality among Singapore firms," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 18(3), pages 221-244, September.
    4. Begoña Giner & Francisca Pardo, 2015. "How Ethical are Managers’ Goodwill Impairment Decisions in Spanish-Listed Firms?," Journal of Business Ethics, Springer, vol. 132(1), pages 21-40, November.
    5. P. Astolfi & Luc Paugam & Olivier Ramond, 2012. "Purchase Price Allocations: Do they Matter?," Post-Print hal-00934973, HAL.
    6. Pierre Astolfi & Luc Paugam & Olivier Ramond, 2012. "Purchase Price Allocations: Do they Matter?," Post-Print halshs-00671611, HAL.
    7. Olante, Maria Elena, 2013. "Overpaid acquisitions and goodwill impairment losses — Evidence from the US," Advances in accounting, Elsevier, vol. 29(2), pages 243-254.
    8. Wen, He & Moehrle, Stephen R., 2016. "Accounting for goodwill: An academic literature review and analysis to inform the debate," Research in Accounting Regulation, Elsevier, vol. 28(1), pages 11-21.
    9. Lionel Touchais, 2008. "La problématique du goodwill. Quelles évolutions et pour quels résultats ?," Post-Print hal-03125504, HAL.
    10. Thomas J. Lopez & Craig A. Sisneros & Trevor Sorensen, 2020. "The market pricing of negative special items through time: an unintended consequence of regulation change?," Review of Quantitative Finance and Accounting, Springer, vol. 54(2), pages 753-777, February.

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