Labor unemployment insurance and earnings management

Yiwei Dou, Mozaffar Khan, Youli Zou

Research output: Contribution to journalArticlepeer-review

23 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)166-184
Number of pages19
JournalJournal of Accounting and Economics
Volume61
Issue number1
DOIs
StatePublished - Feb 1 2016

Keywords

  • Earnings management
  • Labor unemployment insurance
  • Rank and file employees
  • Unemployment risk

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