The $7 Trillion Hazard That Lies Beneath the M&A Boom

With a bankruptcy filing looming, the Westinghouse Electric Co. nuclear business delivered one last stinging blow to Japanese parent Toshiba Corp.'s balance sheet in February: a 712.5 billion yen ($6.4 billion) goodwill writedown. But Toshiba probably won't be the last big company to rue overpaying for assets.

The global M&A boom has left a giant footprint on corporate balance sheets, and we're not just talking about all that debt. Goodwill -- the difference between what assets are worth on paper and how much an acquirer paid for them -- is also soaring, and that could spell trouble for corporate earnings. At S&P 500 companies, goodwill has risen by two-thirds over the past decade and accounts for more than one-third of net assets.