Purchase Price Allocations: Do they Matter?

Pierre Astolfi (1) , Luc Paugam (2) , Olivier Ramond (1)

1 DRM-Finance
2 DRM - Dauphine Recherches en Management

Standards setters support that purchase price allocations (PPAs) enhance financial statement decision-usefulness whereas academics and practitioners challenge this statement. We test the consequences of the quality of PPAs, subsequent to business combinations, on change in market expectations. Using the concept of abnormal goodwill - as a proxy for PPAs' quality - we test the association between PPAs' quality and analyst forecasts revisions, change in forecasts dispersion, and analysts' accuracy of 200 major U.S. business combinations. We do not find evidence that PPAs' quality have material impact on change in market expectations, suggesting that market participants fail to fully integrate information content of PPAs. Consistently, we provide evidence that PPAs' quality enables to generate a profitable investment strategy as cumulated abnormal returns can be systematically generated based on abnormal goodwill recognized in PPAs.

Mots clés: Purchase Price Allocation; Market Expectations; Abnormal Goodwill; Business Combination

Domaines: Gestion et management

Pierre Astolfi, Luc Paugam, Olivier Ramond. Purchase Price Allocations: Do they Matter?. European Accounting Association (EAA) 2012 annual meeting, May 2012, Ljubljana, Slovenia. Financial reporting session. ⟨halshs-00671611⟩