Abstract:

This study aims to examine the impact of earnings-based and equity-based components of executive compensation on purchase price allocation to goodwill after successful acquisitions. This study employs listed companies’ financial data from 2011 to 2016, collected from five ASEAN countries which already adopted IFRS 3 (2004): Business Combinations as standards for M&A transactions and the acquisition premium (goodwill). The results show that bonus as the earnings-based compensation has a significant impact but negatively associated with goodwill recognition, indicating the executives from acquiring companies are not tend to use their discretion for making goodwill overstatement in order to gain more bonuses. Meanwhile, share option as the equity-based compensation is rather weak to mitigate executives’ incentive in making goodwill overstatement, due to only small numbers of ASEAN corporations included share option in the compensation package.