Wayne H. Shaw

Is the Selection of the Amortization Period for Goodwill a Strategic Choice

This study examines whether the choice of amortization life for purchased goodwill is predictive of the firms post-acquisition earnings levels, given that shorter lives could lead to a dilution in earnings. Our findings support this interpretation. Further, consistent with Andrade (2001), we demonstrate a link between post-acquisition earnings changes and stock performance. These results suggest that the amortization life chosen is a reliable predictor of the success of the acquisition both in terms of earnings changes and future stock performance. These findings are relevant since the information concerning the life chosen was eliminated by the adoption of SFAS No. 142.

Future Stock Performance of Oil and Gas Firms Conditional on the Imputed Value of Reserves

Harris and Ohlson (1990) provide evidence suggesting market inefficiencies in the pricing of oil and gas firms in the 1979–1984 period. This paper examines three possible explanations for their results. First, are differences in oil and gas market values (IVR) explained by risk differences. Second, is the trading rule sensitive to changes in oil and gas prices? Third, can the results be replicated in a later period?We provide evidence in support of the risk-based explanation by demonstrating that approximately 75% of the trading rule return can be explained by adjusting for a stocks covariance with market and energy price movements. In addition, we demonstrate some time specific element to the results since the trading rule performs poorly in a subsequent time period.