Does goodwill pressure drive business restructuring based on subsidiary disposal? |
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| Institution: | 1. Department of Accounting, East China Normal University, 500 Dongchuan Road, Shanghai 200241, China;2. Alliance Manchester Business School, The University of Manchester, Booth Street West, Manchester M15 6PB, United Kingdom;3. Chulalongkorn Business School, Chulalongkorn University, Phyathai Road, Bangkok 10330, Thailand;1. Department of Accounting and Finance, United Arab Emirates University, Al Ain, United Arab Emirates;2. School of Business and Law, Edith Cowan University, Joondalup, WA, Australia;3. Business School, University of Portsmouth, Portsmouth PO1 3DE, United Kingdom;4. Department of economics, University of Genoa, Italy |
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| Abstract: | This study investigates whether the existence of goodwill influences firms to remove subsidiaries from consolidation to reduce the pressure from potential impairment loss. Using a sample of Chinese A-share listed companies between 2007 and 2018, we find that the magnitude of goodwill is associated with firms' decisions to dispose of their merged subsidiaries. Also, the likelihood of disposing of subsidiaries is higher among firms with greater impairment probability due to a larger amount of goodwill and lower profitability. Additionally, we observe that firms may simultaneously employ both disposal strategies and impairment write-offs to reduce goodwill pressure. In the cross-sectional analyses, we find that the effect varies between SOEs and non-SOEs. Our findings present the real effect of goodwill impairment on companies' decision-making and provide insights into the impact of accounting practices on firms' investment strategies. |
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| Keywords: | M&A |
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