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Is older goodwill value relevant?

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  • Martin Bugeja
  • Natalie Gallery

Abstract

Although previous research has generally found that goodwill reported in firms’ financial reports is relevant to equity valuation, no known studies have directly examined whether the value‐relevance of purchased goodwill holds as it ages. We examine this issue in the Australian context to determine whether the market attaches different values to the components of Australian firms’ goodwill when it is disaggregated into different ‘ages’. Our results suggest that recently acquired goodwill has information content whereas ‘older’ goodwill does not. Our findings have implications for goodwill accounting practice and recent changes to goodwill accounting standards.

Suggested Citation

  • Martin Bugeja & Natalie Gallery, 2006. "Is older goodwill value relevant?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 46(4), pages 519-535, December.
  • Handle: RePEc:bla:acctfi:v:46:y:2006:i:4:p:519-535
    DOI: 10.1111/j.1467-629X.2006.00181.x
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    File URL: https://doi.org/10.1111/j.1467-629X.2006.00181.x
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    References listed on IDEAS

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    1. Holthausen, Robert W. & Watts, Ross L., 2001. "The relevance of the value-relevance literature for financial accounting standard setting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 3-75, September.
    2. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    3. Alan Gregory, 1997. "An Examination of the Long Run Performance of UK Acquiring Firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(7&8), pages 971-1002.
    4. Chauvin, Keith W. & Hirschey, Mark, 1994. "Goodwill, profitability, and the market value of the firm," Journal of Accounting and Public Policy, Elsevier, vol. 13(2), pages 159-180.
    5. Divesh S. Sharma & Jonathan Ho, 2002. "The Impact of Acquisitions on Operating Performance: Some Australian Evidence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(1&2), pages 155-200.
    6. Barth, Mary E. & Beaver, William H. & Landsman, Wayne R., 2001. "The relevance of the value relevance literature for financial accounting standard setting: another view," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 77-104, September.
    7. Divesh S. Sharma & Jonathan Ho, 2002. "The Impact of Acquisitions on Operating Performance: Some Australian Evidence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(1‐2), pages 155-200.
    8. Agrawal, Anup & Jaffe, Jeffrey F & Mandelker, Gershon N, 1992. " The Post-merger Performance of Acquiring Firms: A Re-examination of an Anomaly," Journal of Finance, American Finance Association, vol. 47(4), pages 1605-1621, September.
    9. Stephen Brown & Mark Finn & Ole-Kristian Hope, 2000. "Acquisition-Related Provision-Taking and Post-Acquisition Performance in the UK Prior to "FRS 7"," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(9&10), pages 1233-1265.
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    Cited by:

    1. Jayne M. Godfrey & Ping‐Sheng Koh, 2009. "Goodwill impairment as a reflection of investment opportunities," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(1), pages 117-140, March.
    2. Araceli Amorós Martínez & José Antonio Cavero Rubio, 2018. "The Economic Effects of IFRS Goodwill Reporting," Australian Accounting Review, CPA Australia, vol. 28(3), pages 309-322, September.
    3. Michael Bradbury, 2009. "Discussion of Dedman, Mouselli, Shen and Stark," Abacus, Accounting Foundation, University of Sydney, vol. 45(3), pages 342-357, September.
    4. Baboukardos, Diogenis & Rimmel, Gunnar, 2014. "Goodwill under IFRS: Relevance and disclosures in an unfavorable environment," Accounting forum, Elsevier, vol. 38(1), pages 1-17.
    5. Karen Benson & Peter M Clarkson & Tom Smith & Irene Tutticci, 2015. "A review of accounting research in the Asia Pacific region," Australian Journal of Management, Australian School of Business, vol. 40(1), pages 36-88, February.
    6. Christian Petersen & Thomas Plenborg, 2010. "How Do Firms Implement Impairment Tests of Goodwill?," Abacus, Accounting Foundation, University of Sydney, vol. 46(4), pages 419-446, December.
    7. Nicola Giuseppe Castellano & Katia Corsi & Roberto Del Gobbo, 2015. "Goodwill Disclosure in Europe. Profiles of disclosing companies," Eastern European Business and Economics Journal, Eastern European Business and Economics Studies Centre, vol. 1(2), pages 32-65.
    8. Walid Saleh, 2014. "Explaining the Cross-Sectional Patterns of UK Expected Stock Returns: The Effect of Intangibles," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 5(2), pages 160-170, April.
    9. Ewa Wanda Maruszewska & Marzena Strojek-Filus & Jiří Pospíšil, 2019. "An Empirical Examination of Accounting Comparability: Goodwill Recognition and Disclosure in Selected Central European Countries," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 67(5), pages 1309-1323.
    10. repec:eeb:15v1n2:v:1:y:2015:i:2:p:32-65 is not listed on IDEAS
    11. Xu, Wei & Anandarajan, Asokan & Curatola, Anthony, 2011. "The value relevance of goodwill impairment," Research in Accounting Regulation, Elsevier, vol. 23(2), pages 145-148.

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