Labor Unions and Goodwill Impairment

Abstract

We explore whether managers of unionized firms tend to reduce reported earnings by reporting goodwill impairment losses for a unique group of firms experiencing mergers and acquisitions. We hypothesize that the existence and strength of labor unions are positively linked to the likelihood, frequency, and amount of goodwill impairment. We document that the likelihood of goodwill impairment is positively linked to labor unions, suggesting that managers facing strong unions are more likely to recognize goodwill impairment. Further, we document that the frequency and amount of goodwill impairment are larger for unionized firms, suggesting that strong unions promote managerial incentives to recognize goodwill impairment losses more frequently and to a larger extent.