Labor unemployment insurance and earnings management

• Autores: Yiwei Dou, Mozaffar Khan, Youli Zou
• Localización: Journal of accounting and economics, ISSN 0165-4101, Vol. 61, Nº. 1, 2016, págs. 166-184
• Idioma: inglés
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• Resumen

  • 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.