Labor unemployment insurance and accounting conservatism

Yixin Liu, Huishan Wan and Yilei Zhang

Review of Financial Economics, 2021, vol. 39, issue 3, 232-253

Abstract: We use state‐level increases in unemployment insurance (UI) benefits as exogenous shocks to unemployment risk to examine its effect on accounting conservatism. Employing difference‐in‐differences analyses, we find an increase in accounting conservatism after UI benefit increases. Our findings support the employee perception management hypothesis, which argues that in order to mitigate labor costs associated with worker turnover, firms have incentives to manage employees’ perceived job security through less conservative accounting. When UI laws reduce workers’ separation costs, employer firms have less incentives to manage employees’ perception, attributing to the positive relation between UI benefits and accounting conservatism. Subsample tests show that this effect is driven by labor‐intensive firms as well as firms with higher risk. Overall, our paper suggests that labor market frictions have a significant impact on firm's accounting reporting policies.

Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1002/rfe.1114

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:revfec:v:39:y:2021:i:3:p:232-253

Access Statistics for this article

More articles in Review of Financial Economics from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().