eThesis - School of Business electronic theses

» hse_ethesis_12019.pdf   size:384 KB (393051)

Objectives: The objective of this thesis is to examine whether discretion is used in the purchase price allocation decisions in companies listed in OMX Helsinki in 2007.

Data: The sample consists of companies listed in OMX Helsinki reporting acquisitions in their 2007 financial statements. Companies operating in the financial services industry are excluded due to their different financial characteristics. Thus, the sample consists of 54 observations. The data is extracted from the financial statements of the sample companies and Bloomberg database.

Results: No evidence was found that discretion in the allocation decision is used in order to manage earnings. Instead, a negative association between the size of the acquirer and proportionate allocation to goodwill was documented implying that scarcity of accounting resources or political costs impact the allocation decision. Moreover, evidence was found that companies in technology, media and telecom sector allocate proportionately more to other intangible assets than companies operating in other sectors. Also, a positive association between the R&D activity of the acquirer and allocation to intangible assets was documented. These further consolidate the findings implicating that the reported allocations do not deviate from the underlying economics as a result of earnings management.

Keywords: Purchase price allocation, IFRS 3, earnings management, mergers and acquisitions