We investigate how different motives shape the initial accounting for goodwill in a setting dominated by controlling owners, using data from 1112 acquisition analyses reported by Swedish listed acquiring firms. In contrast to prior studies, we find no evidence that earnings-based compensation affects the proportion of the purchased price accounted for as goodwill. Instead, we find that when a family-owned firm is the acquirer, a larger proportion of the purchase price is accounted for as goodwill than as specific assets and liabilities. These two findings indicate that controlling owners may curb managerial motives, while controlling family owners apply the discretion of IFRS 3 according to their motives. We also find in this setting that acquisition-related motives have a significant impact on the proportion of the purchased price accounted for as goodwill. Overall, our analyses indicate that the motives shaping goodwill accounting choices depend on the institutional setting.

Purpose - Accentuating the concept of management under uncertainty in the Uppsala internationalization process model, the purpose of this paper is to develop a model for describing how managers act while keeping uncertainty at an acceptable level. Design/methodology/approach - The authors perform two empirical studies to underpin the model they construct. First, a survey of 309 chief executive officers and chief financial officers in large, publicly listed international firms in the Nordic region on managerial risk perceptions and, second, a case study of Volvo Car Corporation and its endeavors when developing new car models for the Chinese market on a new platform - a process characterized by unprecedented uncertainty. Findings - The proposed model describing managers' behavior under uncertainty contains elements such as adjusting/proceeding in small steps, reducing uncertainty via learning, building relationships with important parties in the environment to avoid unforeseen changes and re-dos (i.e. starting all over again) and, perhaps most important, acting despite uncertainty. Originality/value - The paper highlights a central, though forgotten, concept of the Uppsala internationalization process model, i.e. management under uncertainty, and, thereby, opens a new path for research on how manager behave under the sway of uncertainty.

This study examines the value relevance effects of changes in goodwill accounting in a European setting. International Financial Reporting Standard (IFRS) 3 replaced accounting rules that emphasized goodwill amortization over short useful lives which kept goodwill balances low. Goodwill accounting under IFRS 3 largely relies on manager fair value estimates of acquired business units. Using Swedish data, we show that goodwill amortizations were not value-relevant prior to the adoption of IFRS 3. However, impairments reported in addition to amortization were significantly related to stock returns during that period. In contrast, under the impairment-only regime prescribed by IFRS 3, impairments are no longer statistically related to stock returns.

This study demonstrates that the value relevance of accounting information is influenced by the ability to capitalize investments in valuable resources. We use data from Sweden to show that firms that operate in industries in which accounting conservatism limits this capitalization display lower value relevance as a result of more unsustainable earnings components. However, when controlling for the different properties of sustainable and unsustainable earnings components, the difference vanishes. Moreover, we show that firms operating in industries in which more investments are immediately expensed display systematic temporal variations in the level of value relevance. We contend that economic conditions in the form of investment levels and growth expectations explain this variation. Thus, value relevance can be substantially affected by the prevailing economic context.

Purpose

The purpose of this paper is to investigate the extent to which founding‐family firms create value. In particular, the paper investigates how agency costs and monitoring capabilities influence the value creation process.

Design/methodology/approach

The empirical analysis relies on unique hand‐collected ownership data that has been collected for all Swedish publicly listed firms in the years 2001 to 2010 (2,128 observations). The research design employs level regression specifications and they are tested using pooled cross‐sectional regressions with controls for year and industry fixed effects.

Findings

The paper confirms previous studies that firms with founding family ownership have a higher value (Tobin's Q) and higher performance (RNOA). In contrast to prior studies, the paper finds that firm value and performance is significantly higher when ownership is concentrated the most. The paper also shows that firm value and performance is significantly lower for long‐term non‐founding‐family ownership.

Originality/valueThis is one of the largest single‐country analyses of founding family owner effects on value and performance in publicly listed firms. The paper confirms known associations between ownership and performance in a unique institutional setting. The paper extends previous research findings by identifying differences in value and performance between founding family owners and long‐term non‐founding‐family owners.

We examine the familiarity hypothesis of home bias by studying how foreign ownership of Swedish firms is affected by the mandatory adoption of IFRS. We decompose foreign investors into institutional and non-institutional investors. Foreign investors are further decomposed into EU (IFRS adopting countries) and non-EU residents (non-IFRS adopting countries). We analyse the equity investments of these foreign investor groups in Sweden during the period of 2001-2007. We find that after the mandatory adoption of IFRS, foreign ownership/owners from countries that adopted IFRS and particularly those from the EU increased. These effects are particularly strong in small firms. Foreign institutional investors increased their ownership stake after the mandatory IFRS adoption, whereas foreign non-institutional investments were not affected significantly by the IFRS adoption. In contrast to ownership from non-adopting countries, ownership from the EU increased in firms with both more and less tangible assets. Similarly, foreign ownership from the EU increased in firms with both concentrated ownership and dispersed ownership after the adoption. Because Sweden has already had strict legal enforcement and a low level of earnings management prior to the adoption, our results suggest that increased foreign ownership is due to better abilities to compare firms rather than an improved quality.

As in several other recent studies, we find that investors react more negatively when firms announce cross-border acquisitions than domestic acquisitions (c.f. Moeller and Schlingemann, 2005; Mantecon, 2009). Without an economically-based explanation, such findings cast doubt on the merits of acquisitions in foreign markets. We make use of unique hand-collected corporate governance data to examine associations between the acquiring and target firms. Foreign acquirers are often outsiders without access to the target firm’s board and without contact with pre-bid owners of the target firm. These two factors have positive associations with announcement returns, and they explain differences between cross-border and domestic acquisitions. We thus suggest that cross-border acquisitions are not per se value destructive but are rather a form of acquisition characterized by outsider owners. 

In recent years, several accounting standards, including IFRS 3, issued by the IASB, substitute historical cost with fair value measures and so provide managers with increased discretion to determine fair value without an actual market for the asset. Using Swedish data, we document the accounting consequences of the adoption of IFRS 3 and the stock market's reaction. After the adoption of this standard in January 2005 the amount of capitalized goodwill increased substantially. Goodwill impairments under IFRS are considerably lower than goodwill amortizations and impairments made under Swedish GAAP. Consequently, the adoption of IFRS 3 increased reported earnings. An analysis of economic incentives influencing the impairment decision at the initial adoption of IFRS 3 shows that tenured management is negatively associated with the impairment decision. However, most firms did not reclassify goodwill or make additional impairments. Firms with substantial amounts of goodwill yielded abnormally high returns despite abnormally low earnings. Investors seem to, correctly or incorrectly, have viewed the accrual-based increase in earnings stemming from IFRS 3 as an indication of higher future cash flows.

It is often said, among practicians and theorists, that doing business is about taking risks. This thesis is focused on the relationship between doing business, and thereby earning a return, and the inherent risk taking. A profitability risk perspective of the firm is taken, for which an appropriate theory and an accounting-based research methodology is developed.

The empirical part of the thesis deals with the financial performance of Swedish industrial firms. In particular, it is focused on profitability and its stability over time. Several hypotheses concerning risk and return are specified and then tested in a large quantitative study involving 123 industrial firms investigated over the period 1982-96. According to economic theory, there is a positive relationship between risk and return. Thus when controlling for risk no firm can achieve an abnormally high return in the long run. The empirical results stand in contrast with several of the stated hypotheses.

The main conclusion from the empirical study is that firms earning a high return also earn a more stable return over time, whereas firms earning a low return have a more volatile return over time. If stability in return is a valid measure of risk, then the results are in conflict with economic theory. Others have labelled similar findings a "risk-return paradox".

Several other associations between financial variables have been investigated. Some of the results confirm hypotheses concerning risk, others do not. It seems as if the volatility in profitability is mostly explained by operating risk, and then particularly the volatility in sales. But it is shown that the sensitivity to sales volatility also has an important role in explaining operating risk. Furthermore, components of operating and financial risk are related to each other, indicating that management has some ability to influence the level of risk.

To explain a negative association between risk and return, the author returns to the distinction between risk and uncertainty. It is argued that product markets are not as efficient as, e.g., financial markets. The conditions underlying a positive risk-return relationship are not fulfilled. Other explanations of the paradox could be misspecifications of risk, or non-linear risk-return relationships. Without efficient markets, there can never be a positive risk-return relationship and it is questionable whether the efficiency of product markets will ever be adequate for a positive risk-return relationship to be achieved.