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Title: Accounting discretion and purchase price allocation after acquisitions
Authors: Zhang, IX
Zhang, Y 
Issue Date: 1-Apr-2017
Source: Journal of accounting, auditing and finance, 1 Apr. 2017, v. 32, no. 2, p. 241-270
Abstract: The recent movement in standards setting toward fair-value-based accounting beyond financial assets and liabilities calls for more empirical evidence on fair-value measurement, especially that of intangible assets. This article studies the initial valuation of goodwill and identifiable intangible assets after acquisitions. We find that the allocation of purchase price to goodwill and identifiable intangible assets is related to the economic determinants of the valuation. However, it is also significantly affected by managerial incentives arising from the differential treatments of goodwill and identifiable intangible assets under Statement of Financial Accounting Standards (SFAS) 142. The same managerial discretions are not exhibited in the purchase price allocation prior to SFAS 142, when goodwill and other intangibles are both amortized. These findings suggest that unverifiable fair value measures are associated with the underlying economics but also deviate from the true values in the presence of management reporting incentives. Further analysis suggests that external appraisers constrain managerial discretion in intangible asset valuation to an extent but do not completely eliminate it.
Keywords: Fair-value accounting
Intangible assets
SFAS 142
Publisher: SAGE Publications
Journal: Journal of accounting, auditing and finance 
ISSN: 0148-558X
DOI: 10.1177/0148558X15598693
Rights: © The Author(s) 2015
This is the accepted version of the publication Zhang, I. X., & Zhang, Y., Accounting discretion and purchase price allocation after acquisitions, Journal of Accounting, Auditing & Finance (Volume 32 and Issue Number 2) pp. 241-270. Copyright © 2015 (The Author(s)). DOI: 10.1177/0148558X15598693.
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