Purchase Price Allocations: Do they Matter?

P. Astolfi, Luc Paugam () and Olivier Ramond ()
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P. Astolfi: Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres
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 - 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), subsequent to business combinations, enhance financial statement decision-usefulness whereas academics and practitioners challenge this statement. We test the consequences of the quality of PPAs (proxied by the concept of abnormal goodwill) on change in market expectations for 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: Market Expectations; Abnormal Goodwill; Business Combination; Regroupements d'entreprises; Goodwill anormal; Anticipations du marché; Purchase Price Allocation (search for similar items in EconPapers)
Date: 2012-05-21
Note: View the original document on HAL open archive server: https://hal.science/hal-00934973v1
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Published in Comptabilités et innovation, May 2012, Grenoble, France. pp.cd-rom

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