From 2002 – 2019, the number of M&A deals keep on increasing along with the recognition of goodwill. Goodwill has been known to reflect the future expected synergy of the mergers. However, due to the agency problems in recognizing the goodwill amount, goodwill will have possibility on showing negative influence on firm. Thus, using the US firm data from 2002 – 2019, this study aims to examine the effect of goodwill on mergers synergy. Besides goodwill, geographic distance also has been proven to affect the firm performance. This study finds that goodwill affects the mergers synergy negatively due to the existence of agency problems. Next, geographic proximity affect the mergers synergy positively by reducing the information asymmetry between acquirors and targets. Geographic proximity is also found to weaken the negative effect of goodwill on mergers synergy.
Furthermore, this study also aims to examine the relationship between goodwill and goodwill impairment. Goodwill impairment will exist if the goodwill’s carrying value exceeds the fair value. Due to the agency problems in recognizing goodwill, we find that goodwill will affect goodwill impairment positively. However, we do not find the direct effect of geographic proximity on goodwill impairment, but geographic proximity still weakens the positive relationship between goodwill and goodwill impairment.

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