Labor unemployment insurance and earnings management

Yiwei Dou, Mozaffar Khan and Youli Zou

Journal of Accounting and Economics, 2016, vol. 61, issue 1, 166-184

Abstract: We provide new evidence that firms appear to manage long-run earnings upward in order to manage rank and file employees’ perceptions of employment security. In particular, we exploit exogenous state-level changes in unemployment insurance benefits and test for partial unwinding of prior upward earnings management when benefits increase. Consistent with the hypothesis, we find a significant reduction in abnormal accruals, increased recognition of special items and write downs, and greater likelihood of net income-reducing restatements, following an increase in state-level unemployment benefits. A number of cross-sectional results are also consistent with the hypothesis.

Keywords: Earnings management; Unemployment risk; Rank and file employees; Labor unemployment insurance; M41; J01 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (42)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:61:y:2016:i:1:p:166-184

DOI: 10.1016/j.jacceco.2015.06.001

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