Most big corporate mergers are based on a math error that assumes every company will live forever.
April 15, 2026
Original Paper
Going Concern As A Variable: Sector-Calibrated Survival Multipliers For Goodwill Valuation In Mergers And Acquisitions
SSRN · 6489398
The Takeaway
In every major corporate buyout, accountants use 'goodwill' to value a company based on the assumption that its current success is a permanent, binary constant. This paper reveals that treating survival as a given creates a massive upward bias in what these companies are supposedly worth. By applying sector-specific 'survival multipliers,' it becomes clear that we are systematically overestimating the value of acquisitions because we ignore the statistical reality of how often companies actually fail. For the average person, this means your pension fund or 401(k) might be betting on 'zombie' valuations that are mathematically destined to underperform. Our fundamental pillar of corporate accounting—DCF valuation—is built on a house of cards that ignores mortality.
From the abstract
Standard discounted cash flow (DCF) valuation treats going concern as a binary constant: the firm either exists or it does not. In mergers and acquisitions, where no continuous market mechanism corrects for survivorship optimism, this assumption embeds a systematic upward bias in goodwill estimates. We propose the Business Survival Value Multiplier (BSVM), a sector-specific parameter that incorporates empirical survival probability directly into the goodwill adjustment. Using 30 years of establi