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On the Allocation of a Takeover Purchase Price under AASB1013

Listed author(s):
  • Kieran James


    (School of Accounting, Economics and Finance, Faculty of Business and Law, University of Southern Queensland, West Street Toowomba, QLD 4350, Australia)

  • Janice How

    (Economics and Finance, Queensland University of Technology Business School, GPO Box 2434, Brisbane, QLD 4001, Australia)

  • Peter Verhoeven

    (Economics and Finance, Queensland University of Technology Business School, GPO Box 2434, Brisbane, QLD 4001, Australia)

Registered author(s):

    The purpose of this paper is to document and explain the allocation of takeover purchase price to identifiable intangible assets (IIAs), purchased goodwill, and/or target net tangible assets in an accounting environment unconstrained with respect to IIA accounting policy choice. Using a sample of Australian acquisitions during the unconstrained accounting environment from 1988 to 2004, we find the percentage allocation of purchase price to IIAs averaged 19.09%. The percentage allocation to IIAs is significantly positively related to return on assets and insignificantly related to leverage, contrary to opportunism. Efficiency suggests an explanation: profitable firms acquire and capitalise a higher percentage of IIAs in acquisitions. The target's investment opportunity set is significantly positively related to the percentage allocation to IIAs, consistent with information-signaling. The paper contributes to the accounting policy choice literature by showing how Australian firms make the one-off accounting policy choice in regards allocation of takeover purchase price (which is often a substantial dollar amount to) in an environment where accounting for IIAs was unconstrained.

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    Article provided by Penerbit Universiti Sains Malaysia in its journal Asian Academy of Management Journal of Accounting and Finance.

    Volume (Year): 7 (2011)
    Issue (Month): 2 ()
    Pages: 1-34

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    Handle: RePEc:usm:journl:aamjaf00702_1-34
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