Graduate Thesis Or Dissertation
 

Target Value Uncertainty and Goodwill Impairment: Public & Private Targets

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https://ir.library.oregonstate.edu/concern/graduate_thesis_or_dissertations/6682xb71d

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  • In this study, I investigate how target value uncertainty may lead to acquirer mispricing of an acquisition target and how the mispricing may be a determinant of goodwill impairment. To the extent the mispricing leads to both high and low industry-adjusted purchase price multiples (PPMs are my proxies for overpayment and underpayment), I argue that goodwill impairment risk is more sensitive to mispricing for acquisition targets with high target value uncertainty. To examine target value uncertainty and mispricing, I use audited financial statements from the SEC of U.S. private targets to create a novel dataset of industry-adjusted PPMs. I argue that private targets have higher target value uncertainty than public targets, and I find strong evidence that goodwill impairment risk is more sensitive to mispricing, as proxied by high/low industry-adjusted PPMs, for private targets as compared to public targets. In robustness tests, I use alternate measures of industry-adjusted PPMs and other variables to control for the possible impact of target growth expectations, rather than mispricing, on high/low PPMs. I contribute to the limited research on how the determinants of goodwill impairment may be different for private targets as compared to public targets. Given 80% of acquisitions and 40% of the deal value of U.S. acquisitions between 2004 and 2016 are from private target acquisitions, this research question is important to researchers, practitioners, and investors.
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