Accounting Goodwill And The Main Constituent Drivers Of Corporate Value : A Review And Empirical Study

Owen, Gareth Wyn (2004). Accounting Goodwill And The Main Constituent Drivers Of Corporate Value : A Review And Empirical Study. MPhil thesis The Open University.



This thesis begins by exploring the nature and origin of goodwill as an accounting phenomenon, identifying and discussing contributions to this subject and the problems it has posed in accountancy over many years. It also examines how the standard setting bodies of accounting have handled the recognition and measurement of goodwill within financial reports, and then how the whole concept of goodwill fits into accepted economic theory. Having established from the economic perspective that goodwill is in effect a residual measure of value within the accounting arising out of the historical cost and realization principles, the thesis then describes and critically evaluates valuation models that genuinely try and bridge the “value gap” between the accounting and economic models, particularly value-based models such as Residual Income, Economic Value Added, EVA and Shareholder Value Added (SVA).

The thesis then focuses on the free cash flow based SVA model of Alfred Rappaport and adapts this within a pure equity perspective, highlighting the seven key cash flow drivers of shareholder value. These drivers are then linked as far as possible to the main headings within UK and international cash flow statements. Finally the thesis goes on to adapt and develop a testable model using research previously carried out from the “value relevance” literature. This model relates changes in overall market capitalization to changes in the key constituent cash flow drivers found within the cash flow statement. A ‘backward elimination’ stepwise multiple linear regression technique is then adopted to assess for several samples of companies, whether any statistical relationship exists between changes in the independent X cash flow variables identified and the dependent Y variable (changes in market capitalization. ) The findings of these surveys suggest that there is a general statistical relationship existing between these variables, but concludes that no one X variable seems to have any more statistical relationship with or impact on Y than any other. The thesis concludes with a review of the structure and findings, overall conclusions, and a range of specific recommendations for the accounting standard setting bodies to consider as additional reforms to the financial reporting framework.

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  • Item ORO ID
  • 63988
  • Item Type
  • MPhil Thesis
  • Keywords
  • goodwill; goodwill in commerce; accounting
  • Academic Unit or School
  • Faculty of Business and Law (FBL)
  • Copyright Holders
  • © 2003 Gareth Wyn Owen
  • Depositing User
  • ORO Import