The impact of IFRS goodwill reporting on financial analysts' equity valuation judgements: some experimental evidence

Abstract This article uses an experiment to investigate how professional financial analysts evaluate a corporate acquisition announced by an IFRS preparer. The findings suggest that professional analysts are affected by preparers' acquisition premium allocations in a potentially misleading way as the participants considered the acquisition to be value‐enhancing when the premium was allocated to goodwill, but value‐reducing when allocated to identifiable intangible assets. These effects were mitigated at the aggregate level when additional discounted cash flow analysis information was provided; however, there were significant differences in information search behaviour as quite many participants focused primarily on the exploitation of earnings information.