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The impact of IFRS goodwill reporting on financial analysts' equity valuation judgements: some experimental evidence

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Listed:
  • Steven Cahan
  • Niclas Hellman
  • Patric Andersson
  • Emelie Fröberg
  • Steven Cahan

Abstract

type="main" xml:id="acfi12189-abs-0001"> This article uses an experiment to investigate how professional financial analysts evaluate a corporate acquisition announced by an IFRS preparer. The findings suggest that professional analysts are affected by preparers' acquisition premium allocations in a potentially misleading way as the participants considered the acquisition to be value-enhancing when the premium was allocated to goodwill, but value-reducing when allocated to identifiable intangible assets. These effects were mitigated at the aggregate level when additional discounted cash flow analysis information was provided; however, there were significant differences in information search behaviour as quite many participants focused primarily on the exploitation of earnings information.

Suggested Citation

  • Steven Cahan & Niclas Hellman & Patric Andersson & Emelie Fröberg & Steven Cahan, 2016. "The impact of IFRS goodwill reporting on financial analysts' equity valuation judgements: some experimental evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 56(1), pages 113-157, March.
    • Handle: RePEc:bla:acctfi:v:56:y:2016:i:1:p:113-157
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    File URL: http://hdl.handle.net/10.1111/acfi.2016.56.issue-1
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    Citations

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    Cited by:

    1. Konrad Farrugia & Kyle Bonello & Peter J. Baldacchino, 2019. "Corporate Valuation Models Applicable in a Small Stock Market: A Maltese Perspective," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 9(1-2), pages 21-47.
    2. Andersson, Patric & Hellman, Niclas, 2020. "Analysts’ evaluations of acquisitions: Swedish survey evidence on IFRS knowledge and the use of accounting information for valuation purposes," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 41(C).
    3. Sidney J. Gray & Niclas Hellman & Mariya N. Ivanova, 2019. "Extractive Industries Reporting: A Review of Accounting Challenges and the Research Literature," Abacus, Accounting Foundation, University of Sydney, vol. 55(1), pages 42-91, March.
    4. d'Arcy, Anne & Tarca, Ann, 2018. "Reviewing IFRS Goodwill Accounting Research: Implementation Effects and Cross-Country Differences," The International Journal of Accounting, Elsevier, vol. 53(3), pages 203-226.
    5. Stewart Jones & Nurul Alam, 2019. "A machine learning analysis of citation impact among selected Pacific Basin journals," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 59(4), pages 2509-2552, December.

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