Do Investors React to Purchase Price Allocation?

Abstract

This study examines the influence of Purchase Price Allocation (PPA) on investors’ decision making in Thailand by utilising the completed M&A deals which the acquirers listed on the Stock Exchange of Thailand and are over 50% owned after transactions during 2010 – 2019. I investigate how purchase price allocation to goodwill impacts on stock return reaction surrounding the announcement of final PPA information and inspect an association between percentage of goodwill allocated to the identifiable intangible assets and potential earnings per share (EPS) dilution. However, I do not find the supporting evidence to indicate that the investors react to the final disclosure of PPA information and the percentage of goodwill allocated to the identifiable intangible assets. Moreover, my findings do not show that the PPA information may be influenced by management preferences since there is no evidence that the percentage of goodwill allocated to the identifiable intangible assets and potential EPS dilution are correlated.