ESG Controversies, Goodwill Impairments, and the Moderating Role of Investment Opportunities: Evidence From European Firms

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Abstract
The topic of environmental, social, and governance (ESG) controversies has gained momentum among shareholders, creditors, and other stakeholder groups. However, prior literature in this field is silent on how ESG controversies influence managers' decisions regarding goodwill impairments. Against this backdrop, this research empirically examines the association between ESG controversies and goodwill impairment losses, considering the interacting role of corporate investment opportunities (IOS). Drawing on sociopolitical and signaling theories, we formulate and test our hypotheses using Tobit and Logit regression models with a panel dataset obtained from the Refinitiv Eikon database to analyze European firms between 2008 and 2022. Results confirm that ESG controversies are positively and significantly related to both the decision and the magnitude of goodwill impairments. Notably, this positive relation is less pronounced for firms with greater investment opportunities, suggesting that managers in these firms are less likely to impair goodwill during controversies, perhaps to communicate private information on firms' future performance. These results are robust in terms of an alternative measure of IOS and endogeneity. Our results enrich the discourse on the economic implications of corporate controversies, thereby helping to address a critical knowledge gap in ESG literature.

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