Valuation of the Components of Purchased Goodwill

Henning, Steven L.; Lewis, Barry L.; Shaw, Wayne H.

doi:10.2307/2672938

Cited by 154 publications

(92 citation statements)

References 1 publication

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…• A book value for goodwill which has no relation to the economic value of the company (Jennings et al, 1996), • Goodwill depreciation, which does not really represent the loss of value of the latter (Henning et al, 2000). Non-amortization of goodwill avoids these problems, but impairment testing obliges managers to make choices about numerous parameters that create possible sources of manipulation.…”

Section: Recognition Of Intangiblesmentioning

confidence: 99%

Do IFRS provide better information about intangibles in Europe?

Sahut¹,

Boulerne

Teulon

2011

Review of Accounting and Finance

View full text Add to dashboard Cite

Purpose -The purpose of this paper is to study the information content of intangible assets under IAS/IFRS when compared to Local GAAP for European listed companies. Design/methodology/approach -The paper employs multivariate regression models for a sample of 1855 European listed firms in a six-year period, from 2002 to 2004 in Local GAAP and from 2005 to 2007 in IAS/IFRS to investigate the empirical relationships between market value of European firms and book value of their intangible assets. Findings -The results suggest that the book value of other intangible assets of European listed firms is higher under IFRS than Local GAAP and has more informative value for explaining the price of the share and stock market returns. European investors, however, consider the financial information conveyed by capitalized goodwill to be less relevant under IFRS than with Local GAAP. Thus, identified intangible assets capitalized on European company balance sheets provide more value-relevant information for shareholders than unidentified intangible assets that have been transferred into goodwill, with the exception of Italian and Finnish investors. Originality/Value -The paper adds to the existing literature on IFRS by documenting the association between the market value of European listed firms and the book value of their goodwill and other intangibles assets. The study complements prior studies by demonstrating that country differences persist despite the use of common accounting standards and that Legal and regulatory country characteristics as well as market forces could still have a significant impact on the value relevance of accounting data.

show abstract

Section: Recognition Of Intangiblesmentioning

confidence: 99%

Do IFRS provide better information about intangibles in Europe?

Sahut¹,

Boulerne

Teulon

2011

Review of Accounting and Finance

View full text Add to dashboard Cite

show abstract

“…Thus, we limit our formal predictions about the estimated coefficients to their signs. Consistent with Henning et al (2000), BV and TS are predicted to have positive estimated coefficients while LS is expected to have a negative estimated coefficient. If all puts are valued as liabilities as SFAS 150 calls for, we predict that the sign of the estimated coefficient of PUT will be negative.…”

Section: Modelmentioning

confidence: 52%

Valuation and classification of company issued cash and share-puts

Terando

Shaw

Smith

2007

Rev Quant Finan Acc

Self Cite

View full text Add to dashboard Cite

This paper examines whether investors' valuations of cash and share-put warrants are influenced by their potential differential effect on firm solvency. It is motivated by the enactment of SFAS 150, which requires that all contingent put warrant obligations be classified as balance sheet liabilities regardless of put type. Consistent with the critics of SFAS150, we show that market participants differentially value cash and share-puts based on their solvency characteristics beyond the firm's recorded assets and liabilities. Our results add to existing capital structure literature by suggesting that complex financial instruments (such as cash and share-puts) be reported separately from each other on a firm's balance sheet.

show abstract

“…According to the empirical research (Jennings et al, 1996;Henning, Lewis, & Shaw, 2000), goodwill is considered by markets to be an asset, with its value capitalized in the market value of the firm. Thus, any overstatement of reported goodwill may bring about a mispricing (overvaluation) of a company's stock.…”

Section: Discussionmentioning

confidence: 99%

Full-Goodwill Method of Accounting for Business Combinations and Quality of Financial Statements

Welc¹

2015

JMAA

View full text Add to dashboard Cite

Accounting goodwill arises as a result of business combinations and appears in a consolidated balance sheet of an acquirer. It is an intangible asset which reflects an excess of value of an acquired business as a whole over a summed value of its identifiable net assets. Since 2010, the International Financial Reporting Standards (IFRS) allow for two alternative methods of measuring goodwill in those business combinations, where an acquirer obtains a control over a target company without obtaining 100% share in its shareholder's equity. Under one of these methods, which is called a "full-goodwill method", the goodwill attributable to non-controlling interests in subsidiary is measured at fair value. Thus, the main accounting problem with this method lies in its requirement to estimate the fair value of non-controlling interests. This paper suggests that the "full-goodwill method" may sacrifice financial statement reliability for its alleged relevance, with significant potential for "creative accounting".The problems with reliability and transparency of financial statements, when "full-goodwill method" is applied, are illustrated by a real-life example of the takeover of Formula Systems Ltd. by Asseco Group (one of the biggest IT companies in Europe, listed on the Warsaw Stock Exchange).

show abstract

Valuation of the Components of Purchased Goodwill

Cited by 154 publications

References 1 publication

Do IFRS provide better information about intangibles in Europe?

Do IFRS provide better information about intangibles in Europe?

Valuation and classification of company issued cash and share-puts

Full-Goodwill Method of Accounting for Business Combinations and Quality of Financial Statements

Contact Info

Product

Resources

About