Employee effort and earnings management

Jesper Haga, Fredrik Huhtamäki and Dennis Sundvik

Global Finance Journal, 2022, vol. 53, issue C

Abstract: In this study, we examine the relationship between employee effort within the firm and earnings management, using data on working hours and discretionary accruals. With higher employee effort, we find less earnings management among U.S. firms. This result is stronger when earnings are more predictable and persists after we control for endogeneity. We also find smaller earnings discontinuities with higher employee effort. Our domestic results remain the same with a global sample. Our results suggest that earnings management enables benchmark beating with greater precision than can high employee effort alone, but also that high-effort firms may be misclassified as earnings manipulators.

Keywords: Earnings discontinuities; Earnings management; Loss avoidance (search for similar items in EconPapers)
JEL-codes: J24 M41 M50 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:53:y:2022:i:c:s104402832100020x

DOI: 10.1016/j.gfj.2021.100622

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