TY - JOUR
T1 - Labor unemployment insurance and earnings management
AU - Dou, Yiwei
AU - Khan, Mozaffar
AU - Zou, Youli
PY - 2016/2/1
Y1 - 2016/2/1
N2 - 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.
AB - 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.
KW - Earnings management
KW - Labor unemployment insurance
KW - Rank and file employees
KW - Unemployment risk
UR - http://www.scopus.com/inward/record.url?scp=84960305634&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84960305634&partnerID=8YFLogxK
U2 - 10.1016/j.jacceco.2015.06.001
DO - 10.1016/j.jacceco.2015.06.001
M3 - Article
AN - SCOPUS:84960305634
SN - 0165-4101
VL - 61
SP - 166
EP - 184
JO - Journal of Accounting and Economics
JF - Journal of Accounting and Economics
IS - 1
ER -