Evidence of income-decreasing earnings management before labour negotiations within the firm

Araceli Mora Enguídanos and Ana Sabater Marcos
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Araceli Mora Enguídanos: Universidad de Valencia
Ana Sabater Marcos: Universidad Miguel Hernández

Investigaciones Economicas, 2008, vol. 32, issue 2, 201-230

Abstract: The "political costs" hypothesis predicts that labour bargaining creates incentives to reduce accounting earnings in order to avoid salary demands. Previous studies in countries with a "close shop system", such as the U.S. and Canada, have obtained mixed results. We argue that the political costs hypothesis is better suited to the "open shop system" of Continental European countries. Using a sample of Spanish companies, Jones (1991) model and its extensions are used to analyse total and discretionary accruals around the time of labour negotiations. The evidence that we obtain is consistent with the hypothesis that managers depress earnings prior to negotiations.

Keywords: Accruals; earnings management; collective bargaining. (search for similar items in EconPapers)
JEL-codes: J30 J51 M41 (search for similar items in EconPapers)
Date: 2008
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