Negative goodwill and postmerger operating performance: evidence from Japan

Abstract

Purpose

This study examines the relation between negative goodwill (NGW) and operating performance after mergers and acquisitions (M&A).

Design/methodology/approach

This is a comparative analysis of post-M&A operating performance for 228 transactions involving listed Japanese firms that generated negative or positive goodwill.

Findings

First, post-M&A operating performance is lower when the transaction generates NGW. Second, the negative relation between NGW and post-M&A performance is stronger when managers have incentives for earnings management and when target firms perform poorly before M&A. Third, changes in the accounting treatment of NGW alter the relative importance of earnings management incentives and target firms' poor pre-M&A performance.

Originality/value

Prior studies attribute the negative relation between NGW and post-M&A performance solely to acquiring firms' managers' earnings management incentives. The current study finds that the target firm's poor pre-M&A performance is also associated with the relation between NGW and post-M&A performance.

Citation

Amano, Y. (2022), "Negative goodwill and postmerger operating performance: evidence from Japan", Asian Review of Accounting, Vol. 30 No. 4, pp. 381-397. https://doi.org/10.1108/ARA-02-2022-0033