Article2017

Corporate Social Responsibility and Goodwill Impairment

Joanna Golden · Li Sun · Joseph H. Zhang

15 citations0/0 files storedAccounting and the Public Interest

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Auditing, Earnings Management, Governance Corporate Social Responsibility Reporting Corporate Governance and Financial Management

Abstract

ABSTRACT This study examines the relation between corporate social responsibility (CSR) and goodwill impairment. We rely mainly on the stakeholder theory and adopt the Posner (1974) public interest model to develop our predictions. Following prior research, we use CSR strengths (concerns) to measure responsible (irresponsible) CSR activities. We find a negative relation between CSR strengths and the likelihood of goodwill impairment, suggesting that firms with more responsible CSR activities better prevent goodwill impairment. In addition, we find a negative relation between CSR concerns and the magnitude of goodwill impairment losses, suggesting that firms with excessive irresponsible CSR activities seek to lessen the negative consequences of goodwill impairment. Overall, our findings demonstrate the importance of CSR in preventing goodwill impairment and mitigating the manipulation of (underreporting) goodwill impairment losses. JEL Classifications: G18; M14; M41. Data Availability: Data are available from the sources identified in the paper.

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References

1977Institutionalized Organizations: Formal Structure as Myth and Ceremony 2010Strategic management a stakeholder approach 1979A Three-Dimensional Conceptual Model of Corporate Performance 1995A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance 2007Strategy and society: the link between competitive advantage and corporate social responsibility 1997THE CORPORATE SOCIAL PERFORMANCE-FINANCIAL PERFORMANCE LINK 1999A Review of the Earnings Management Literature and Its Implications for Standard Setting 2002Audit committee, board of director characteristics, and earnings management

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