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Merger accounting treatment combined performance of listed companies Empirical Study

Author: DiaoMin
Tutor: LvXianZuo
School: Southwestern University of Finance and Economics
Course: Accounting
Keywords: Purchase method Pooling of interest method Consolidated Performance Affect
CLC: F275
Type: Master's thesis
Year: 2010
Downloads: 605
Quote: 1
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Abstract

Business combinations in the optimal allocation of resources, improve the efficiency of enterprise management has an important role, which is very popular in the international arena, business combinations Western economic life has become an important part. Due to the financial crisis, the global M \u0026 A scale rally ended in 2008, but China has become the global M \u0026 A market and some fresh highlights; 2008, China M \u0026 A activity remains strong, is only achieved growth in Asia-Pacific countries. Large merger wave, not only on the global economic landscape have a huge impact, but also on the specification of merger accounting presents a challenge, such as the purchase cost of confirmation, measurement and amortization of purchased goodwill, merger accounting methods, combined philosophy and so on. Business combination accounting issues have always been of accounting theory and practice of common concern, but also highly controversial field of accounting. Among them, the accounting treatment of business combinations has been the focus of controversy selected, choose a different merger accounting treatment (mainly the purchase method and the pooling of interest method) may result in different accounting consequences and economic consequences, which would produce the performance of a business combination different effects. Because it is easy to be carried out as a means of financial whitewash utilization, FASB and IASB in the early 2000s has abolished the use of the pooling of interests method. In China, due to the continuous development of the socialist market economy and improvement, especially after the split share structure reform, enterprise groups through mergers pursuit of the overall market, more and more convertible merger makes the pooling of interest method presented in our ascendant trend. In 2006, Ministry of Finance revised \Why do you want to keep our country's controversial pooling of interest method? Interests method in our very existence rationality? Different merger accounting method will merge the performance of enterprises and what impact? Therefore, the accounting treatment of business combinations explore not only the importance of international convergence of accounting content, better for our retained interests method provides theoretical support. In this paper, a different method of merger accounting differences departure itself, a detailed analysis of both the characteristics and the potential economic consequences and accounting consequences, combined with China accounting for listed companies merger situation, the use of empirical research method to analyze both the combined performance. In our country in 2007 occurred in Shanghai and Shenzhen listed companies merger case as research samples, financial analysis method using the purchase method and the pooling of interest method of consolidation comprehensive scoring performance, analyze the different merger accounting treatment for business combinations that affect performance and further pooling of interests method in China's listed companies merger by preference causes. Based on this evaluation standards of business combinations using the purchase method and the pooling of interest method coexistence \Finally, our country, made a number of operable Suggestions and guidance in order to help enterprises merger guidelines developed and refined. Through theoretical and empirical research, this paper the following conclusions: the pooling of interests method, the combined firm performance is rising, it is because a business combination under common control easier to create synergy, enabling superior performance after the merger merger before. For the combined entity under common control, the merger is conglomerate departure from the group as a whole, integration of resources, to enhance the overall competitiveness of certain strategic objectives or the means to achieve its control over the transfer did not occur, the business is continuous, management is continuous, substantial changes have not occurred, the controlling party does not lose control over economic resources, and thus more prone to post-merger synergies; purchase method, the company's consolidated performance first decreased and then increased trend. For non-consolidated companies under common control, the main and enterprise and between enterprises and the acquisition of the former relationship does not exist, its business management, corporate culture, organizational structure, etc. there are differences, the combined needs of various aspects integration, this integration process speed, integrating the results will affect the quality of performance of corporate mergers, in general, to the enterprise merger integration process performance impact is negative, the integration is completed to generate synergies, the firm's merger performance can be improved, which is able to explain the merger of enterprises under the purchase method performance first decreased and then increased. Compared with the purchase method, pooling of interests method of consolidation can bring optimum performance. Different methods of merger accounting consequences arising from different accounting for business combinations in the performance evaluation index will have a very big impact, when a business combination under common control, it can be combined using the equity method of accounting, and for using the purchase wears comparison, the main and enterprise after the merger can obtain higher earnings per share and return on net assets, the financial indicators is better than the purchase method. As an important indicator to measure the performance of combinations, more financial indicators merger will bring optimum performance. Synergistic integration and financial indicators as other advantages, generate interest method is superior to the combined performance of the combined performance of the purchase method of generating enterprises in the consolidation process for pooling of interest method have special preferences. When a business combination under common control business combinations, you can combine using the equity method of accounting, if the purchase wears comparison with the use of the Lord and in the combined enterprise can obtain higher earnings per share and return on net assets, in Financial indicators on the performance significantly better than the financial statements under the purchase method. In order to obtain the advantages of financial indicators, companies have an incentive to prefer to combine equity method in order to obtain optimum financial indicators, to achieve financial synergy effect. Corporate performance better, the larger the company, executives receive high returns likely. Business combination under common control using the pooling of interest method can obtain higher earnings per share and return on net assets, increased nominal compensation, the company's management after the merger is likely to get higher returns, which also makes the management of the Company preference for their own benefit in using the pooling of interests method to merge. Performance of enterprises in the merger consideration, will always choose to merge target companies prefer to and within the same group holding company or a subsidiary of its own, Sun and other companies to merge in order to combine using the equity method of accounting, to obtain optimum financial indicators, to create synergy. However, this could lead to business for the pursuit of performance, will actually not a business combination under common control transactions through various means virtual constitute a business combination under common control, in order to achieve its unlawful purpose. Therefore, we should strengthen our business combination under common control with the accounting standards and limits the abuse of interests method. First, it should maintain the same control business combinations and non-business combination under common control mutually exclusive. Secondly, restrictions should be required to limit the use of pooling of interest method, learn from foreign experience, our choice of limiting criteria: A. business combinations impossible or difficult to determine the fair value; B. must pay the price of stock (convertible merger ); C. majority shareholders to participate in a business combination; D. The management has continuity; E. merge their businesses similar or complementary; F. equity merging parties after the merger did not happen 'and significant changes. For the purchase method, although its capacity to improve the performance of combinations of interests method is better, but its fair value and impairment of goodwill has two profit manipulation tool, it is easy to become a pooling of interests method can not be used for consolidation of corporate profit manipulation tools , our special financing and regulatory environment, the purchase method should be assessed at fair value, goodwill impairment aspects to be improved. Finally, the paper argues that at this stage of the special economic circumstances, is not suitable for blind banning of interests method. First, China's market-oriented is not high, property transactions is still in the developmental stage, the use of the fair value of the purchase method insurmountable problem difficult to solve within a short time, the potential benefits of the purchase method of manipulating the problem can not be ignored; Second, China's listed companies a large part is separated from the state-owned group, and these groups within the Group's asset quality, business or a separate subsidiary, become a listed company, and then adopt a business combination within the group's way to achieve the overall market In this case, only allowing the use of fair value based on the purchase method is not practical. Therefore, the pooling of interests method and the purchase method of co-existence of dual structure is a realistic choice. From the current point of view, China is in the period of growth in a business combination, merger activity between enterprises growing. Compared with the purchase method, pooling of interest method is undoubtedly a promotion policy. It has a higher than the purchase method ROE and earnings per share, which can beautify the accounting statements, and ultimately will lead to better performance of combinations, giving investors a lot of confidence conducive to China's enterprises and stronger to do large, thus promoting China's economic development.

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