Goodwill is an asset that represents future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Prior research debates the concept of goodwill as an asset because some components of goodwill are associated with future economic benefits, but others are not. In this paper, I identify deferred tax liabilities (DTLs) generated by book-tax differences of acquired identifiable tangible and intangible assets as a component of goodwill that is less likely to be associated with future economic benefits. These acquisition-related DTLs inflate accounting goodwill and potentially obscure the relevance of goodwill. I predict and find that the presence of DTLs in the purchase price allocation reduces the predictive value and relevance of the goodwill asset.
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