Considering that there are not previous studies that empirically examine issues related to provisional goodwill arising from business combinations, this exploratory study aims at examining the determinants of the managerial decision to recognise goodwill amount on a provisional basis, also in the light of its relationship with the subsequent definitive goodwill amount recognised at the end of the measurement period. In pursuit of these objectives, I analyse a sample of business combinations concluded in the European context over a four-year period (2010-2013). Main findings suggest that goodwill recognised on a provisional basis is overstated in comparison with definitive goodwill amount. Additionally, the decision to account for goodwill on a provisional basis is due to a particular relationship with stock market prices of the acquirer. This study contributes to the goodwill accounting literature as well as the current debate on accounting for goodwill since it highlights the relevance to consider specific issues affecting the initial determination of goodwill amount. In this regard, findings have also practical importance since they could improve standard setter’s activity.
Key-Words: Earning Management, goodwill, business combinations, IFRS 3, measurement period
