Association between corporate social responsibility and goodwill impairment: evidence from the European Union

Abstract

I examine the association between corporate social responsibility (CSR) and goodwill impairment (GWI) in the European Union. A stream of literature indicates that CSR is associated with determinants of GWI. Prior literature has shown that each CSR component could generate individual effects. Therefore, I focus on disaggregating CSR into its main categories: environmental, social, and governance (ESG). I believe it is beneficial to provide evidence on the individual effects of ESG on GWI, as CSR affects multiple mergers and acquisitions (M&A) processes as well as the post-merger deal performance. Governance activities are in short-term associated with GWI, while social activities reveal a longer-term association (until t + 3). Furthermore, I investigate the association between ESG and the discretionary (unexpected) GWI losses. The results show that managers who engage in governance and environmental activities seem to act more ethically regarding earnings management behaviour.