@article{cee01b1513c7401bbcb498d714e6cefa,
title = "The invisible burden",
abstract = "We study the role of goodwill, an important form of intangible assets arising from merger and acquisitions (M&As), on asset pricing. We find that goodwill-to-sales strongly and negatively predicts the cross-section of U.S. stock returns, especially among firms with cross-industry M&As and firms with overconfident CEOs. It remains an economically and statistically significant predictor of stock returns after adjustment for common factors. Our results suggest that goodwill-to-sales subsumes information on firm value, and stock markets underreact to this information because the fair value of goodwill is unobservable and hard to evaluate.",
keywords = "Cash flows, Goodwill, Market inefficiency, Return predictability, Underreaction",
author = "Xin Liu and Chengxi Yin and Weinan Zheng",
note = "Funding Information: The feedback and advice from Tarun Chordia (the editor) and an anonymous referee are gratefully acknowledged. We thank Shiyang Huang, Dong Lou, Mike Adams, Xiaoran Ni, Vesa Pursiainen, Hanwen Sun, Chi-Yang Tsou, Hong Xiang, Ru Xie, Tong Zhou, all seminar participants at FMA Asia-Pacific Conference 2019, FMA European Conference 2019, British Accounting and Finance Association Annual Conference 2019, Queen Mary University of London, University of Bath, and The University of Hong Kong for helpful comments and suggestions. This paper was previously circulated under the title “The Invisible Burden: Goodwill and the Cross-Section of Stock Returns.” Xin Liu acknowledges seed corn funding support from the School of Management, University of Bath. Funding Information: The feedback and advice from Tarun Chordia (the editor) and an anonymous referee are gratefully acknowledged. We thank Shiyang Huang, Dong Lou, Mike Adams, Xiaoran Ni, Vesa Pursiainen, Hanwen Sun, Chi-Yang Tsou, Hong Xiang, Ru Xie, Tong Zhou, all seminar participants at FMA Asia-Pacific Conference 2019, FMA European Conference 2019, British Accounting and Finance Association Annual Conference 2019, Queen Mary University of London, University of Bath, and The University of Hong Kong for helpful comments and suggestions. This paper was previously circulated under the title “The Invisible Burden: Goodwill and the Cross-Section of Stock Returns.” Xin Liu acknowledges seed corn funding support from the School of Management, University of Bath . Publisher Copyright: {\textcopyright} 2020 Elsevier B.V.",
year = "2021",
month = jan,
doi = "10.1016/j.finmar.2020.100561",
language = "English",
volume = "52",
journal = "Journal of Financial Markets",
issn = "1386-4181",
publisher = "Elsevier",
}