This study examines whether the choice of amortization life for purchased goodwill is predictive of the firm's post-acquisition earnings levels, given that shorter lives could lead to a dilution in earnings. Our findings support this interpretation. Further, consistent with Andrade (2001), we demonstrate a link between post-acquisition earnings changes and stock performance. These results suggest that the amortization life chosen is a reliable predictor of the success of the acquisition both in terms of earnings changes and future stock performance. These findings are relevant since the information concerning the life chosen was eliminated by the adoption of SFAS No. 142.
Review of Quantitative Finance and Accounting – Springer Journals
Published: Oct 17, 2004
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