Negative goodwill and postmerger operating performance: evidence from Japan

Yoshiaki Amano

Asian Review of Accounting, 2022, vol. 30, issue 4, 381-397

Abstract: Purpose - This study examines the relation between negative goodwill (NGW) and operating performance after mergers and acquisitions (M&A). Design/methodology/approach - This is a comparative analysis of post-M&A operating performance for 228 transactions involving listed Japanese firms that generated negative or positive goodwill. Findings - First, post-M&A operating performance is lower when the transaction generates NGW. Second, the negative relation between NGW and post-M&A performance is stronger when managers have incentives for earnings management and when target firms perform poorly before M&A. Third, changes in the accounting treatment of NGW alter the relative importance of earnings management incentives and target firms' poor pre-M&A performance. Originality/value - Prior studies attribute the negative relation between NGW and post-M&A performance solely to acquiring firms' managers' earnings management incentives. The current study finds that the target firm's poor pre-M&A performance is also associated with the relation between NGW and post-M&A performance.

Keywords: Bargain purchase; Japan; Mergers and acquisitions (M&A); Negative goodwill; Post-M&A operating performance (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:arapps:ara-02-2022-0033

DOI: 10.1108/ARA-02-2022-0033

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