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Effect of factors on company’s goodwill

Author

Listed:
  • Amir Ahmad Dar

    (Lovely Professional University)

  • Akshat Jain

    (Lovely Professional University)

  • Mehak Malhotra

    (Lovely Professional University)

  • Shahbaz Afzal

    (Chitkara University)

  • Mohammad Shahfaraz Khan

    (University of Technology and Applied Sciences)

Abstract

The super profit method (SPM) is a valuation technique used to estimate the value of goodwill. It is commonly used in the context of valuing small businesses or professional practices. The present research aims to assess the impact of super profit, capital employed, nominal profit, and nominal rate on goodwill values. To find which parameter impacts more on the response variable, the design of the experiment (DOE) is considered. To conduct the experiments and optimize the factors for goodwill values, the study utilizes the design of experiment methodology. Notably, this research is the first to employ the DOE to identify the optimal combination of input factors. To explore the effects of input factors, the Taguchi method L9 DOE, analysis of variance (ANOVA), regression coefficient, and analysis of mean (ANOM) are used, and the analysis is carried out using MINITAB 18 software. ANOM allows us to discover the most effective combinations of variables across different levels, specifically focusing on their impact on a desired output. It also helps us establish the rank of input factors based on their influence on the respective outputs. The regression analysis can be used by the traders to check the behavior of factors that impact the goodwill valuation. ANOVA is used to gauge the percentage contribution of these factors to the variation in goodwill value. The results indicate that, for a specific dataset, the factors affecting goodwill value are ranked in the following order: purchase period (N), average profit (AP), nominal rate (r), and capital employed (CA). Finally, some other factors have also been studied that impact the goodwill of a firm during this study.

Suggested Citation

  • Amir Ahmad Dar & Akshat Jain & Mehak Malhotra & Shahbaz Afzal & Mohammad Shahfaraz Khan, 2023. "Effect of factors on company’s goodwill," Journal of Global Entrepreneurship Research, Springer;UNESCO Chair in Entrepreneurship, vol. 13(1), pages 1-10, December.
    • Handle: RePEc:spr:jglont:v:13:y:2023:i:1:d:10.1007_s40497-023-00361-5
    DOI: 10.1007/s40497-023-00361-5
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    References listed on IDEAS

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    1. repec:eme:jpvi00:14635789310031405 is not listed on IDEAS
    2. Adam Lindgreen & Valérie Swaen & François Maon, 2009. "Introduction: Corporate Social Responsibility Implementation," Journal of Business Ethics, Springer, vol. 85(2), pages 251-256, April.
    3. Francesco Mazzi & Paul André & Dionysia Dionysiou & Ioannis Tsalavoutas, 2017. "Compliance with goodwill-related mandatory disclosure requirements and the cost of equity capital," Accounting and Business Research, Taylor & Francis Journals, vol. 47(3), pages 268-312, April.
    4. Amir Ahmad Dar & Shahid Qadir, 2019. "Distance to default and probability of default: an experimental study," Journal of Global Entrepreneurship Research, Springer;UNESCO Chair in Entrepreneurship, vol. 9(1), pages 1-12, December.
    5. Kevin K. Li & Richard G. Sloan, 2017. "Has goodwill accounting gone bad?," Review of Accounting Studies, Springer, vol. 22(2), pages 964-1003, June.
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    More about this item

    Keywords

    Goodwill; Valuation; Super profit method; DOE; Climate change;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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