Did the Goodwill Accounting Standard have Material Economic Consequences for Australian Acquirers?
Kieran James* and Janice How and Peter Verhoeven
Working Paper No. 08/06
June 2006
JEL classifications: G18, M41
About the Authors
The authors gratefully acknowledge helpful comments of Keith Alfredson, Stewart Jones, Phil Shane, Don Stokes, Peter Wells, and Jilnaught Wong as well as seminar participants at Curtin University of Technology, The University of Melbourne, The University of Auckland, The University of Sydney, University of Technology Sydney and Monash University. Initial discussions with Philip Brown have been instrumental to the development of the research ideas. Capable research assistance by Effiezal Abdul Wahab is appreciated. This paper is based largely upon Kieran James’ PhD. thesis (Curtin University of Technology, Australia, 2005).
*Corresponding Author. Address for Correspondence: Dr Kieran James, School of Commerce, Charles Sturt University, Locked Bag 588, Wagga Wagga NSW 2678, Australia.
Charles Sturt University – Faculty of Business Working Paper Series
Managing Editor: Associate Professor Jayne Bisman, School of Accounting, Bathurst
Editors: Dr P. Mathews, School of Commerce, Wagga Wagga
Associate Professor M. O'Mullane, School of Business, Albury
Dr R. Tierney, School of Marketing and Management, Bathurst
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Table of Contents
- Abstract
- Introduction
- Hypothesis
- Research Model
- Data
- Results
- Conclusions
- References
Abstract
This research explores the empirical association between takeover bid premium and acquired (purchased) goodwill, and tests whether the strength of the association changes after the passage of approved accounting standard AASB1013 in Australia in 1988. AASB1013 mandated capitalization and amortization of acquired goodwill to the income statement over a maximum period of 20 years. We use regressions which assess how the association between bid premium and acquired goodwill varies in the pre– and post–AASB1013 period after controlling for confounding factors. Our results show that reducing the variety of accounting policy options available to bidder management after an acquisition results in no systematic reduction in the strength of the association between premium and goodwill, presumably due to alternative means of signalling available to managers after AASB1013.