Effects of Alternative Goodwill Treatments on Merger Premia: Further Empirical Evidence

In this study, we extend our analysis of the effects of international accounting diversity on market behavior. Specifically we examine whether national differences in the treatment of purchased goodwill are associated with differences in premia offered by non-U.S. acquirers other than the British when bidding for U.S. target companies. We find merger premia offered by foreign acquirors who enjoy advantageous accounting or tax treatments relative to U.S. acquirors to be higher, on average, than those offered by U.S. acquirors. Regression analyses show that goodwill accounting does explain merger premia. The higher coefficient on goodwill in German acquisitions, relative to Japanese acquisitions, indicates that merger premia are associated with accounting diversity among various countries in the sense that, while tax benefits are available in both Japan and Germany, more favorable accounting treatments are operative in the latter.