Motivation of Discretionary Goodwill Impairments

With the wave of M&A, total amount of goodwill balances has been accumulated to a enormous number in Chinese capital market. Accounting Standards is controversial about high discretion in the goodwill subsequent measurements. This study examines whether goodwill book value is consistent with corporate performance by using the decomposition of goodwill book value. Base on panel data of A-share listed companies from 2007 to 2020, fix-effect regression findings indicate that the beginning goodwill balance is negatively associated with corporate performance, and acquired goodwill is positively associated with corporate performance, on average; There is an interactive effect between the goodwill age and the beginning goodwill balance, with the longer goodwill age, more significant negative correlation is between the beginning goodwill balance and corporate performance. This study reveals that goodwill balance continuously damages corporate performance, on average. And point out that motivation of discretionary goodwill impairments is about to decrease goodwill balance by withdrawing goodwill impairments.The book value of goodwill barely reflects goodwill’s economic nature, this study suggests Accounting Standards to treat the merger premiums as expenses