Does IFRS Adoption Accelerate M&A? The Consequences of Different Goodwill Accounting in Japan

This study investigates how the gap in goodwill accounting between the Japanese local accounting standards (Japanese generally accepted accounting principles) and international accounting standards (International Financial Reporting Standards) is related to the likelihood of firms adopting international accounting standards and the merger and acquisition transactions that result. The study first examines whether the adoption of international accounting standards is associated with the past merger and acquisition activities of adopters and their goodwill ratio. Second, to control for possible self-selection bias arising from the firms' incentives for adopting international accounting standards, propensity score matching is employed to select control firms that used Japanese local accounting standards and have a similar probability of adoption of international accounting standards. Third, whether there was any difference in the number of merger and acquisition transactions is examined, as well as the goodwill ratio, between the period before and after the adoption of international accounting standards. Firms that are actively involved in merger and acquisition transactions have a higher probability of voluntary adoption of international accounting standards than those following Japanese local standards. Further, adopters of international accounting standards experience a larger increase in the number of merger and acquisition transactions than those adopting local standards. While the goodwill ratio among adopters of international accounting standards was higher than that for adopters of Japanese local accounting standards, there is no evidence that the former increase the goodwill ratio after adoption.