Consolidated goodwill and innovation capability of enterprises

Abstract

Abstract: A large amount of goodwill has become a hidden danger for some companies, but there is little literature to discuss the relationship between consolidated goodwill and corporate innovation capability. Is the consolidated goodwill the catalyst to create future profits or the poison contained crisis, and how does it affect the corporate innovation capability? From the perspective of "value creation view" and "value destruction view", this paper tries to analyze the different economic consequences of consolidated goodwill under different scales, as well as the specific mechanisms which affect the corporate innovation capability. This article may help understand the nature of consolidated goodwill and the influential factors of corporate innovation.
Using the data of Chinese listed companies from 2012 to 2018, this paper tests the effect of consolidated goodwill on innovation capability. With the nonlinear model, it is found that there is an inverted U-shaped relationship between the scale of consolidated goodwill and corporate innovation capability. And the critical value of consolidated goodwill is about 10%, which is about the fourth quintile of Gdasset (denoting consolidated goodwill divided by assets). If the consolidated goodwill of a firm is below this threshold, it will have a positive effect on corporate innovation capability. On the contrary, it will damage the innovation capability of firms. Furthermore, the effect of consolidated goodwill in promoting innovation is more pronounced among the companies audited by the international "Big Four" accounting firm. Mechanism tests show that the consolidated goodwill has an impact on corporate innovation capability through two channels: external financing competence and internal collaborative competence. Specifically, the author uses debt cost and firm value to measure external financing competence and internal collaborative competence respectively.
To confirm the reliability of empirical results, this paper conducts several robustness tests. First, this paper uses the Tobit model to alleviate endogeneity problems. Second, this paper tests how excess goodwill affects corporate innovation. And the results show that the impact of excess goodwill on R&D input and patent output is significantly negative, which is consistent with the main results. Finally, this paper uses Kendall τ test to verify the impact of different consolidated goodwill scales on innovation, and the conclusion still holds. According to the above research conclusions, consolidated goodwill has different economic consequences due to its different scales. When the scale of consolidated goodwill is in a reasonable range, consolidated goodwill will positively influence corporate innovation by affecting external financing competence and internal collaborative competence, which supports the "value creation view". Otherwise, it supports the "value destruction view".
Therefore, the policy recommendation of this article is as follows: investors and companies should rationally treat consolidated goodwill. The future profitability represented by the scale of consolidated goodwill is management′s estimation based on the current situation, and there is a certain degree of uncertainty about whether it can be realized or not later. Therefore, it is recommended that when carrying out mergers and acquisitions, companies can hire high-quality auditors, and pay attention to the reasonable size of the consolidated goodwill. This article not only enriches the literature on the economic consequences of consolidated goodwill and the influential factors of corporate innovation but also helps companies and investors understand the nature of consolidated goodwill and provide a reference for their decisions.

Key words: consolidated goodwill, innovation capability, external financing competence, internal collaborative competence, nonlinear correlation

Yang Dan. Consolidated goodwill and innovation capability of enterprises[J]. Science Research Management, 2021, 42(5): 1-11.

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