Full-Stock-Payment Marginalization in Merger and Acquisition Transactions

The number of merger and acquisition (M&A) transactions paid fully in stock in the U.S. market declined sharply after 2001, when pooling and goodwill amortization were abolished by the Financial Accounting Standards Board. Did this accounting rule change really have such far reaching implications? Using a difference-in-differences test and Canada as a counterfactual, this study reveals that it did. We also report several other results confirming the role of pooling abolishment, including (i) that the decrease in full stock payment relates to CEO incentives and (ii) that previously documented determinants of the M&A mode of payment cannot explain the post-pooling abolishment pattern. These results are also robust to controls for various factors, such as the Internet bubble, the exclusion of cross-border deals, the presence of Canadian cross-listed firms, the use of a constant sample of acquirers across the pooling and post-pooling abolishment periods, the use of Europe as an alternative counterfactual, and controls for the SEC Rule 10b-18 share repurchase safe harbor amendments of 2003

Full-Stock-Payment Marginalization in Merger and Acquisition Transactions

The number of merger and acquisition (M&A) transactions paid fully in stock in the U.S. market declined sharply after 2001, when pooling and goodwill amortization were abolished by the Financial Accounting Standards Board. Did this accounting rule change really have such far reaching implications? Using a difference-in-differences test and Canada as a counterfactual, this study reveals that it did. We also report several other results confirming the role of pooling abolishment, including (i) that the decrease in full stock payment relates to CEO incentives and (ii) that previously documented determinants of the M&A mode of payment cannot explain the post-pooling abolishment pattern. These results are also robust to controls for various factors, such as the Internet bubble, the exclusion of cross-border deals, the presence of Canadian cross-listed firms, the use of a constant sample of acquirers across the pooling and post-pooling abolishment periods, the use of Europe as an alternative counterfactual, and controls for the SEC Rule 10b-18 share repurchase safe harbor amendments of 2003

Decision Usefulness of Goodwill in Financial Statement Reporting

The subsequent accounting for goodwill has been and continues to be debated among standard setters, financial statement users, and the academic community. Accounting guidance surrounding the subsequent accounting for goodwill has been amended over the past 2 decades to address cost and complexity, comparability, and faithful representation. This study attempted to determine if faithful representation of goodwill improved with the passage of ASU 2011–04, which amended SFAS 142 and could be adopted by companies with fiscal years beginning after December 15, 2011. ASU 2011–04 offered a qualitative assessment of the faithful representation of goodwill based on certain events and circumstances prior to performing the two-step quantitative test. The researcher determined the existence and strength of the relationship between the recognition of impairment expense and two indicators of the impairment of goodwill upon the acquisition of a target company. The two impairment indicators included the use of common stock as consideration for the purchase price and the percentage of the purchase price recognized as goodwill. The results of the study showed that the use of common stock as consideration for the purchase price continued to be an indicator of impairment expense and, therefore, the value of goodwill was faithfully represented. However, the results of the study showed that the percentage of the purchase price allocated to goodwill had a smaller than typical relationship with impairment expense, which indicated that faithful representation under ASU 2011–08 had declined