Skip to main content

Nature of Property Right, Free Cash Flow and Goodwill of M&A

  • 677 Accesses

Part of the Advances in Intelligent Systems and Computing book series (AISC,volume 1190)

Abstract

Chinese economy is shifting from a stage of rapid growth to a stage of high-quality development. M&A has become an important method to achieve extensive growth for Chinese companies. This paper takes Chinese listed companies on the Shanghai Stock Exchange and the Shenzhen Stock Exchange from 2007 to 2017 as research sample, and studies the relationship between free cash flow and goodwill, as well as the moderating effect of nature of property right on the relationship between free cash flow and goodwill in M&A. The research shows: first, free cash flow is significantly positive correlated to goodwill of M&A; second, compared with non-state-owned companies, the free cash flow has a weaker impact on the goodwill of M&A in state-owned companies.

Keywords

  • Free cash flow
  • Goodwill
  • Property rights

This is a preview of subscription content, access via your institution.

Buying options

Chapter
USD   29.95
Price excludes VAT (USA)
  • DOI: 10.1007/978-3-030-49829-0_15
  • Chapter length: 13 pages
  • Instant PDF download
  • Readable on all devices
  • Own it forever
  • Exclusive offer for individuals only
  • Tax calculation will be finalised during checkout
eBook
USD   269.00
Price excludes VAT (USA)
  • ISBN: 978-3-030-49829-0
  • Instant PDF download
  • Readable on all devices
  • Own it forever
  • Exclusive offer for individuals only
  • Tax calculation will be finalised during checkout
Softcover Book
USD   349.99
Price excludes VAT (USA)

References

  1. Allen, F., Qian, J., Qian, M.: Law, finance, and economic growth in China. J. Financ. Econ. 77(1), 57–116 (2005)

    CrossRef  Google Scholar 

  2. Barth, M., Clinch, G.: International accounting differences and their relation to share prices: evidence from U.K., Australian, and Canadian firm. Contemp. Account. Res. 13(1), 135–170 (1996)

    CrossRef  Google Scholar 

  3. Von Beschwitz, B.: Cash windfalls and acquisitions. J. Financ. Econ. 128, 287–319 (2018)

    CrossRef  Google Scholar 

  4. McCarthy, M., Schneider, D.: Market perception of goodwill: some empirical evidence. Account. Bus. Res. 26(1), 69–81 (1995)

    CrossRef  Google Scholar 

  5. Chauvin, K.W., Hirschey, M.: Goodwill, profitability, and the market value of the firm. J. Account. Public Policy 13(2), 159–180 (1994)

    CrossRef  Google Scholar 

  6. Faccio, M., McConnell, J.J.: Political connections and corporate bailouts. J. Finance 61, 2597–2635 (2006)

    CrossRef  Google Scholar 

  7. Freund, S., Prezas, A.P., Vasudevan, G.K.: Operating performance and free cash flow of asset buyers. Financ. Manag. 32(4), 87–106 (2003)

    CrossRef  Google Scholar 

  8. Gugler, K., Yurtoglu, B.: The effects of mergers on company employment in the USA and Europe. Int. J. Ind. Organ. 22(4), 481–502 (2004)

    CrossRef  Google Scholar 

  9. Harford, J.: Corporate cash reserves and acquisitions. Soc. Sci. Electron. Publ. 54(6), 1969–1997 (1999)

    Google Scholar 

  10. Heaton, J.: Managerial optimism and corporate finance. Financ. Manag. 31(2), 33–45 (2002)

    CrossRef  Google Scholar 

  11. Jennings, R., Robinson, J., Thompson, R.B.: The relation between accounting goodwill numbers and equity values. J. Bus. Finance Account. 23(4), 513–533 (2006)

    CrossRef  Google Scholar 

  12. Lamont, O.: Cash flow and investment: evidence from internal capital markets. J. Finance 52, 83–109 (1997)

    CrossRef  Google Scholar 

  13. Lee, C.: The effect of SFAS 142 on the ability of goodwill to predict future cash flow. J. Account. Public Policy 30(3), 236–255 (2011)

    CrossRef  Google Scholar 

  14. Li, D., Ye, J., Lu, S.: Management overconfidence, nature of property rights and goodwill from M&A activities. Account. Res. 327(10), 50–57 (2018). (in Chinese)

    Google Scholar 

  15. Malmendier, U., Tate, G.: Does overconfidence affect corporate investment? CEO overconfidence measures revisited. Eur. Financ. Manag. 11(5), 649–659 (2005)

    CrossRef  Google Scholar 

  16. Paton, W.: Accounting theory. J. Polit. Econ. (1925)

    Google Scholar 

  17. Richardson, S.: Over-investment of free cash flow. Rev. Account. Stud. 11(2–3), 159–189 (2006)

    CrossRef  Google Scholar 

  18. Wright, P., Kroll, M., Elenkov, D.: Acquisition returns, increase in firm size, and chief executive officer compensation: the moderating role of monitoring. Acad. Manag. J. 45(3), 599–608 (2002)

    Google Scholar 

  19. Zhang, D.L., Zhang, Y., Jiang, X.F.: Venture capital, free cash flow and the non-efficient investment of GEM-listed companies. Finance Res. 2(6), 54–62 (2016). (in Chinese)

    Google Scholar 

  20. Zhu, S., Xia, D.: Institutional environment, economic development level and accounting conservatism. J. Audit Econ. 24(6), 57–63 (2009). (in Chinese)

    Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Lingli Yu .

Editor information

Editors and Affiliations

Appendix

Appendix

Table 5. Variable definitions

Rights and permissions

Reprints and Permissions

Copyright information

© 2020 The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG

About this paper

Verify currency and authenticity via CrossMark

Cite this paper

Wu, L., Yu, L., Mao, L. (2020). Nature of Property Right, Free Cash Flow and Goodwill of M&A. In: Xu, J., Duca, G., Ahmed, S., García Márquez, F., Hajiyev, A. (eds) Proceedings of the Fourteenth International Conference on Management Science and Engineering Management. ICMSEM 2020. Advances in Intelligent Systems and Computing, vol 1190. Springer, Cham. https://doi.org/10.1007/978-3-030-49829-0_15

Download citation