Labor unions and post-acquisition integration capability: evidence from goodwill impairment

Abstract

We examine whether operating inflexibility posed by labor unions affects goodwill impairment. We predict such inflexibility hinders resource reallocation after acquisition, thereby preventing the acquiring firm from realizing synergies included in goodwill. Consistent with this prediction, we find that the strength of labor unions is positively associated with the likelihood and magnitude of goodwill impairment losses. Our results are robust to a battery of tests that address the potential endogeneity. Furthermore, we find that managers who possess superior ability mitigate the negative consequences of labor unions on goodwill impairment. Overall, our findings suggest that operating inflexibility posed by labor unions is an important determinant of goodwill impairment that indicates a failure to realize the expected synergy from the acquisition. © 2022 John Wiley & Sons Ltd.