The Relationship of Merger Declaration and The Accounting Approaches of Goodwill

The purpose of this study is to extend the current research of the cumulative abnormal return caused by the announcement of M&A event. We observed the effect by event study method with comprehension of Hypotheses in M&A Theory. Based on researches of the relationship between policies releasing and cumulative abnormal return, we analyzed how investors reacted in M&A declaration if the financial indices quality of merging companies are changed by R.O.C. GAAP No. 35 releasing. The measurement of an enterprise’s asset, liability, and profit ability would be affected when change in industrial environment occurs, such as the releasing of new business laws or policies. Based on the Rational Expectations Theory, investors would make stock reevaluations as a response of receiving the information of environmental changing, as a result, cumulative abnormal return will be captured before and after the changing event happens. Besides, according to the Theory of Mergers & Acquisition, the announcement of M&A event would also make investors generate another reasonable stock price based on the expectation of event consequences. I used 81 listed companies involved in the merging events during 2000 to 2013 as the samples. The result of the study showed that the releasing of R.O.C. GAAP No. 35 would increase the referring value of the acquirer’s total asset and net income during the day before and after the announcement of merging events. In addition, the released GAAP would decrease the referring value of the acquirer’s goodwill-to-assets ratio.