This thesis examines the value relevance of goodwill that has been eliminated through\ud
reserves in the year of acquisition. Specifically, it investigates the association beiween\ud
goodwill reserve write-off and the value placed on the firm by the stock market. In so\ud
doing, the thesis describes the relationship between the implied value of purchased\ud
goodwill and that of other assets, and we seek to explain the underlying paffern of the\ud
amortisation of goodwill over time.\ud
The empirical method uses cross-sectional equity valuation models for the period 1994-\ud
6. Based on the modified balance sheet identity, the equity valuation model\ud
parameterises purchased goodwill and other assets separately, and a more\ud
meaningful interpretation is given of the intercept term than in previous studies relating\ud
to purchased goodwill.\ud
The results confirm that the market incorporates information on the goodwill reserve\ud
write-off in the valuation of a firm, and the results also show that the market: book ratio\ud
is similar to tangible assets but its behaviour suggests a relatively higher amortisation\ud
rate. Although the present study provides evidence supporting the requirement in FRS\ud
10 (Goodwill and Intangible Assets) to capitalise purchased goodwill, the findings also\ud
show that the incremental value of capitalised goodwill declines far more quickly than\ud
FRS1O suggests, thus placing particular importance on the impairment test required by\ud
FRS 10