Abstract
The purpose of this study is to reveal the determinants of the amortization period of negative goodwill in order to determine whether the choice of amortization period reflects the management’s perception of the future outlook. The analysis results suggest that the management chooses a shorter amortization period when the case resulting in negative goodwill is relief-oriented and a longer amortization period when the transaction is under common control. This indicates that the choice of amortization period for negative goodwill may reflect the management’s perception of the duration in which the business combination will incur costs or loss and that systematic amortization—which was a requirement before the Accounting Standard for Business Combinations in Japan was revised—might have offered useful information on the future outlook of the company.
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Notes
- 1.
A transaction under common control refers to a business combination in which all combined companies (or businesses) are ultimately controlled by the same company before and after the business combination and the said control is not temporary (the old standards, Article 2, Paragraph 10). The so-called group reorganization often falls under the category of transactions under common control.
- 2.
The amount of amortization in term t was estimated on the basis of the business period of the acquired company listed on the consolidated income statement (this period is the one listed on the securities report; if it is not listed, the period between the date of business combination and the end of the term is considered).
- 3.
COMMON was positive and significant at the 10 % and 5 % levels even when the same analysis was performed by defining the transactions under common control as COMMON = 1 without imposing the requirement of not having a minority shareholder of the subsidiary after the business combination. The analysis results, therefore, showed no significant difference either way.
- 4.
There were four sample cases where COMMON = 1 and RELIEF = 1. Because whether the restructuring after the business combination will be carried out from a short-term or long-term perspective was unclear for these four cases, an analysis was performed in the same way by excluding these samples. As a result, the coefficient of RELIEF was significantly negative at the 5 % level and the coefficient of COMMON was significantly positive at the 5 % level in both models, indicating that the results were similar to the results shown in Table 7.
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Takahashi, Y. (2014). Accounting Policy Choice for Negative Goodwill. In: Ito, K., Nakano, M. (eds) International Perspectives on Accounting and Corporate Behavior. Advances in Japanese Business and Economics, vol 6. Springer, Tokyo. https://doi.org/10.1007/978-4-431-54792-1_6
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