Accounting discretion and purchase price allocation after acquisitions

Ivy Xiying Zhang, Yong Zhang

Research output: Contribution to journalArticle

Abstract

The recent movement in standards setting toward fair-value-based accounting beyond financial assets and liabilities calls for more empirical evidence on fair-value measurement, especially that of intangible assets. This article studies the initial valuation of goodwill and identifiable intangible assets after acquisitions. We find that the allocation of purchase price to goodwill and identifiable intangible assets is related to the economic determinants of the valuation. However, it is also significantly affected by managerial incentives arising from the differential treatments of goodwill and identifiable intangible assets under Statement of Financial Accounting Standards (SFAS) 142. The same managerial discretions are not exhibited in the purchase price allocation prior to SFAS 142, when goodwill and other intangibles are both amortized. These findings suggest that unverifiable fair value measures are associated with the underlying economics but also deviate from the true values in the presence of management reporting incentives. Further analysis suggests that external appraisers constrain managerial discretion in intangible asset valuation to an extent but do not completely eliminate it.

Original languageEnglish (US)
Pages (from-to)241-270
Number of pages30
JournalJournal of Accounting, Auditing and Finance
Volume32
Issue number2
DOIs
StatePublished - 2017

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Economics
Liability
Intangibles
Incentives

Keywords

  • Fair-value accounting
  • Goodwill
  • Intangible assets
  • SFAS 142

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics, Econometrics and Finance (miscellaneous)

Cite this

Accounting discretion and purchase price allocation after acquisitions. / Zhang, Ivy Xiying; Zhang, Yong.

In: Journal of Accounting, Auditing and Finance, Vol. 32, No. 2, 2017, p. 241-270.

Research output: Contribution to journalArticle

Zhang, Ivy Xiying; Zhang, Yong / Accounting discretion and purchase price allocation after acquisitions.

In: Journal of Accounting, Auditing and Finance, Vol. 32, No. 2, 2017, p. 241-270.

Research output: Contribution to journalArticle

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