Nature of Property Right, Free Cash Flow and Goodwill of M&A

  • Lan Wu
  • Lingli YuEmail author
  • Liqin Mao
Conference paper
Part of the Advances in Intelligent Systems and Computing book series (AISC, volume 1190)


Chinese economy is shifting from a stage of rapid growth to a stage of high-quality development. M&A has become an important method to achieve extensive growth for Chinese companies. This paper takes Chinese listed companies on the Shanghai Stock Exchange and the Shenzhen Stock Exchange from 2007 to 2017 as research sample, and studies the relationship between free cash flow and goodwill, as well as the moderating effect of nature of property right on the relationship between free cash flow and goodwill in M&A. The research shows: first, free cash flow is significantly positive correlated to goodwill of M&A; second, compared with non-state-owned companies, the free cash flow has a weaker impact on the goodwill of M&A in state-owned companies.


Free cash flow Goodwill Property rights 


  1. 1.
    Allen, F., Qian, J., Qian, M.: Law, finance, and economic growth in China. J. Financ. Econ. 77(1), 57–116 (2005)CrossRefGoogle Scholar
  2. 2.
    Barth, M., Clinch, G.: International accounting differences and their relation to share prices: evidence from U.K., Australian, and Canadian firm. Contemp. Account. Res. 13(1), 135–170 (1996)CrossRefGoogle Scholar
  3. 3.
    Von Beschwitz, B.: Cash windfalls and acquisitions. J. Financ. Econ. 128, 287–319 (2018)CrossRefGoogle Scholar
  4. 4.
    McCarthy, M., Schneider, D.: Market perception of goodwill: some empirical evidence. Account. Bus. Res. 26(1), 69–81 (1995)CrossRefGoogle Scholar
  5. 5.
    Chauvin, K.W., Hirschey, M.: Goodwill, profitability, and the market value of the firm. J. Account. Public Policy 13(2), 159–180 (1994)CrossRefGoogle Scholar
  6. 6.
    Faccio, M., McConnell, J.J.: Political connections and corporate bailouts. J. Finance 61, 2597–2635 (2006)CrossRefGoogle Scholar
  7. 7.
    Freund, S., Prezas, A.P., Vasudevan, G.K.: Operating performance and free cash flow of asset buyers. Financ. Manag. 32(4), 87–106 (2003)CrossRefGoogle Scholar
  8. 8.
    Gugler, K., Yurtoglu, B.: The effects of mergers on company employment in the USA and Europe. Int. J. Ind. Organ. 22(4), 481–502 (2004)CrossRefGoogle Scholar
  9. 9.
    Harford, J.: Corporate cash reserves and acquisitions. Soc. Sci. Electron. Publ. 54(6), 1969–1997 (1999)Google Scholar
  10. 10.
    Heaton, J.: Managerial optimism and corporate finance. Financ. Manag. 31(2), 33–45 (2002)CrossRefGoogle Scholar
  11. 11.
    Jennings, R., Robinson, J., Thompson, R.B.: The relation between accounting goodwill numbers and equity values. J. Bus. Finance Account. 23(4), 513–533 (2006) CrossRefGoogle Scholar
  12. 12.
    Lamont, O.: Cash flow and investment: evidence from internal capital markets. J. Finance 52, 83–109 (1997)CrossRefGoogle Scholar
  13. 13.
    Lee, C.: The effect of SFAS 142 on the ability of goodwill to predict future cash flow. J. Account. Public Policy 30(3), 236–255 (2011)CrossRefGoogle Scholar
  14. 14.
    Li, D., Ye, J., Lu, S.: Management overconfidence, nature of property rights and goodwill from M&A activities. Account. Res. 327(10), 50–57 (2018). (in Chinese) Google Scholar
  15. 15.
    Malmendier, U., Tate, G.: Does overconfidence affect corporate investment? CEO overconfidence measures revisited. Eur. Financ. Manag. 11(5), 649–659 (2005)CrossRefGoogle Scholar
  16. 16.
    Paton, W.: Accounting theory. J. Polit. Econ. (1925) Google Scholar
  17. 17.
    Richardson, S.: Over-investment of free cash flow. Rev. Account. Stud. 11(2–3), 159–189 (2006)CrossRefGoogle Scholar
  18. 18.
    Wright, P., Kroll, M., Elenkov, D.: Acquisition returns, increase in firm size, and chief executive officer compensation: the moderating role of monitoring. Acad. Manag. J. 45(3), 599–608 (2002)Google Scholar
  19. 19.
    Zhang, D.L., Zhang, Y., Jiang, X.F.: Venture capital, free cash flow and the non-efficient investment of GEM-listed companies. Finance Res. 2(6), 54–62 (2016). (in Chinese)Google Scholar
  20. 20.
    Zhu, S., Xia, D.: Institutional environment, economic development level and accounting conservatism. J. Audit Econ. 24(6), 57–63 (2009). (in Chinese)Google Scholar

Copyright information

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2020

Authors and Affiliations

  1. 1.Business SchoolSichuan UniversityChengduPeople’s Republic of China

Personalised recommendations