Fair value accounting, earnings management, and the case of bargain purchase gain

Lilien, Steven B.; Sarath, Bharat; Yan, Yan

doi:10.1108/ara-04-2018-0091

Cited by 8 publications

(26 citation statements)

References 46 publications

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“…This study extends the literature, especially studies by Dunn et al. (2016) and Lilien et al. (2020), in several ways.…”

Section: Introductionsupporting

confidence: 79%

“…Although Dunn et al. (2016) and Lilien et al. (2020) attribute the stagnant performance after transactions with NGW solely to earnings management incentives, the current study suggests that target firms' poor pre-M&A performance is also responsible.…”

Section: Introductionmentioning

confidence: 55%

“…Two empirical studies examining the relationship between BPG and post-M&A operating performance (Dunn et al. , 2016; Lilien et al. , 2020) report that transactions generating BPG lead to poor post-M&A performance.…”

Section: Introductionmentioning

confidence: 99%

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Negative goodwill and postmerger operating performance: evidence from Japan

Amano

2022

ARA

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PurposeThis study examines the relation between negative goodwill (NGW) and operating performance after mergers and acquisitions (M&A).Design/methodology/approachThis is a comparative analysis of post-M&A operating performance for 228 transactions involving listed Japanese firms that generated negative or positive goodwill.FindingsFirst, 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/valuePrior 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.

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“…This study extends the literature, especially studies by Dunn et al. (2016) and Lilien et al. (2020), in several ways.…”

Section: Introductionsupporting

confidence: 79%

Section: Introductionmentioning

confidence: 55%

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Negative goodwill and postmerger operating performance: evidence from Japan

Amano

2022

ARA

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“…For instance, Bratten et al (2013) report that recent studies have examined management's discretion in developing fair value estimates; the results generally suggest that managers use this discretion opportunistically. This is especially so in the case of level-3 fair value estimates, which uses unobservable inputs developed by management (see Lilien et al, 2020). Joe et al (2017) also report that past studies document widespread of management bias and opportunism around the subjective inputs (e.g.…”

Section: Accounting Estimates Measurement Uncertainty and Management Biasmentioning

confidence: 99%

Measurement uncertainty and management bias in accounting estimates: the perspective of key audit matters reported by Chinese firms' auditors

Lau

2020

ARA

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PurposeThis study examines (1) the extent of key audit matters (KAMs) reported by auditors is related to accounting estimates, (2) whether measurement uncertainty and management bias affect auditors to do so and (3) whether the use of accounting estimates, given the measurement uncertainty and management bias reported in KAMs adversely affects the decision usefulness of accounting information.Design/methodology/approachData on key audit matters, accounting estimates, measurement uncertainty, management bias, etc. were collected from the auditor's reports of 351 sample Chinese listed firms. It employs regression analyses to assess the hypotheses on issues affecting the report of these key audit matters and the impacts on the decision usefulness of accounting information.FindingsFair value and impairment loss estimations make up of 2.6 and 44.1% of the 606 KAMs identified, respectively. Measurement uncertainty is positively, while management bias is negatively, affecting auditors report KAMs related to accounting estimates. The use of accounting estimates in firms where their auditors reported the KAMs related to accounting estimates does not enhance the value and predictive relevance of reported earnings. The assurance works on, and reporting of, KAMs served as a “red flag” about the accounting estimates.Practical implicationsThe use of accounting estimates does not always lead to enhanced decision-useful accounting information. Auditors, in their stewardship role, shall ensure that the measurement uncertainty issue is appropriately identified, addressed and verified. In addition, they shall provide an effective check-and-balance to the accounting discretion managers have in providing decision-useful information from opportunistic reporting.Originality/valueThis study examines the proposition that while the use of estimates can enhance the decision usefulness of accounting information, it can also induce measurement uncertainty and management bias into financial reporting.

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“…In terms of empirical research, Lilien and Miah believe that fair value accounting information is valuerelated [4,5]. McDonough found that the accounting environment would significantly affect the relationship between fair value accounting information and stock price [6].…”

Section: Introductionmentioning

confidence: 99%

Application of numerical method of functional differential equations in fair value of financial accounting

Yang¹

2021

Applied Mathematics and Nonlinear Sciences

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In order to improve the information quality of financial accounting reports, this paper puts forward a functional differential equation, establishes the determination model of fair value by mathematical analysis method and studies the correlation of financial accounting information of fair value through this model. The results show that according to the fair value determination model, in the free accounting environment, fair value financial accounting information has an impact.

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Fair value accounting, earnings management, and the case of bargain purchase gain

Cited by 8 publications

References 46 publications

Negative goodwill and postmerger operating performance: evidence from Japan

Negative goodwill and postmerger operating performance: evidence from Japan

Measurement uncertainty and management bias in accounting estimates: the perspective of key audit matters reported by Chinese firms' auditors

Application of numerical method of functional differential equations in fair value of financial accounting

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