Is M & A Goodwill the Prior Signal of Stock Price Crash Risk? From the Perspectives of Accounting Function and Financial Security

Wang Wenjiao, Fu Chao, Fu Daiguo

Journal of Finance and Economics Vol. 43, Issue 09, pp. 76 - 87 (2017)  DOI:10.16538/j.cnki.jfe.2017.09.006

Abstract

Based on the large-scale high-premium M & As in China's capital market, this paper investigates whether M & A goodwill can be the pre-warning of stock price crash risk and play the role of prior signal of stock price crash risk by taking A-share non-financial listed companies from 2007 to 2013 as the sample. It arrives at the following conclusions:firstly, compared to companies without goodwill, companies with goodwill face greater stock price crash risks in the future; and the stock price crash risk increase with the growth of goodwill scale; secondly, this prior signal role differs in companies at different levels of accounting conservatism, and corporate accounting conservatism as a whole may be the internal power of constraining goodwill asset manipulation, but this difference is not significant statistically; thirdly, compared to the companies with stronger external governance, the prior signal role of goodwill in stock price crash risk is more significant in companies with weaker external governance, namely external analyst tracking forecasts and institutional investor shareholding are external governance power of monitoring and constraining manipulation management of goodwill assets. This paper enriches the literature focusing on the impact of accounting characteristics on companies' stock price crash risk, and provides clear and reliable empirical evidence for accounting function of financial statement data in emerging capital market. And meanwhile, it reminds regulators and investors to predict the stock price crash risk through goodwill assets from the perspective of accounting conservatism.

Keywords

M & A goodwill; accounting conservatism; stock price crash risk; external monitoring