Strategic Management Forecasts and Accounting Choices: A Case of Employee Downsizing in Japan

Keishi Fujiyama and Makoto Kuroki
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Makoto Kuroki: Graduate School of International Management, Yokohama City University, Japan

No DP2017-06, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: Prior research shows that managers make income-decreasing accounting choices around labor negotiations and predicts that managers disclose bad news during labor negotiations. This study extends the literature by investigating whether disclosure and financial statements reporting practices are consistent during employee downsizing years. Using data from Japanese domestic firms during the period 2002-2016, we find that beginning-of-period management forecasts (i.e., disclosure) are positively associated with during-period negative stock returns for downsizing firms but not for non-downsizing firms. Also, downsizing firms report more conservative earnings at the end of the fiscal years (i.e., financial statements reporting). Our supplementary analyses show no difference in an association between management forecast errors and stock returns between downsizing and non-downsizing firms with during-period negative stock returns, nor in an association between discretionary accruals and employee downsizing. These results suggest that managers strategically inform firms' prospects during employee downsizing years.

Keywords: Accounting conservatism; Management forecast; Employee downsizing; Labor negotiation (search for similar items in EconPapers)
JEL-codes: G34 J51 M41 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2017-03, Revised 2017-09
New Economics Papers: this item is included in nep-acc
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