Purchase Price Allocations: Do they Matter?

Pierre Astolfi (), Luc Paugam () and Olivier Ramond ()
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Pierre Astolfi: DRM-Finance - DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Luc Paugam: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Olivier Ramond: DRM-Finance - DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: Standards setters support that purchase price allocations (PPAs) enhance financial statement decision-usefulness whereas academics and practitioners challenge this statement. We test the consequences of the quality of PPAs, subsequent to business combinations, on change in market expectations. Using the concept of abnormal goodwill - as a proxy for PPAs' quality - we test the association between PPAs' quality and analyst forecasts revisions, change in forecasts dispersion, and analysts' accuracy of 200 major U.S. business combinations. We do not find evidence that PPAs' quality have material impact on change in market expectations, suggesting that market participants fail to fully integrate information content of PPAs. Consistently, we provide evidence that PPAs' quality enables to generate a profitable investment strategy as cumulated abnormal returns can be systematically generated based on abnormal goodwill recognized in PPAs.

Keywords: Purchase Price Allocation; Market Expectations; Abnormal Goodwill; Business Combination (search for similar items in EconPapers)
Date: 2012-05-09
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00671611v1
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Published in European Accounting Association (EAA) 2012 annual meeting, May 2012, Ljubljana, Slovenia. Financial reporting session

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