Goodwill Accounting and Takeover Premiums: Pre- and Post-IFRS

29 Pages Posted: 10 Oct 2011 Last revised: 9 Oct 2012

See all articles by Martin Bugeja

Martin Bugeja

University of Technology, Sydney; Financial Research Network (FIRN)

Anna Bedford

University of Technology, Sydney - School of Accounting; Financial Research Network (FIRN)

Date Written: October 9, 2011

Abstract

Prior US research indicates that acquiring firms pay an additional premium in acquisitions (i.e., pooling transactions) in which they do not need to amortise goodwill. The results of these studies however are subject to endogeneity problems as the accounting method choice and takeover premiums are jointly determined. As Australia has never permitted a choice of the pooling method, this study is able to take advantage of Australia’s adoption of IFRS in 2005 to examine the relationship between goodwill accounting and takeover premiums without concerns regarding endogeneity.

Our results show that bidding firms lower their takeover premium when there is greater target firm goodwill. This relationship however is eliminated after Australia adopted IFRS and no longer required goodwill amortisation. Furthermore, we show that this change in the relationship between takeover premiums and goodwill post- IFRS only exists for bidding firms that have a CEO accounting based performance plan in place.

Keywords: Goodwill, takeover premiums, IFRS

JEL Classification: G34, M40, M41

Suggested Citation

Bugeja, Martin and Bedford, Anna, Goodwill Accounting and Takeover Premiums: Pre- and Post-IFRS (October 9, 2011). Available at SSRN: https://ssrn.com/abstract=1941459 or http://dx.doi.org/10.2139/ssrn.1941459

Martin Bugeja (Contact Author)

University of Technology, Sydney ( email )

Australia
61 2 9514 3743 (Phone)
61 2 9514 3669 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Anna Bedford

University of Technology, Sydney - School of Accounting ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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