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Labor unemployment insurance and earnings management

Author

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  • Dou, Yiwei
  • Khan, Mozaffar
  • Zou, Youli

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.

Suggested Citation

  • Dou, Yiwei & Khan, Mozaffar & Zou, Youli, 2016. "Labor unemployment insurance and earnings management," Journal of Accounting and Economics, Elsevier, vol. 61(1), pages 166-184.
    • Handle: RePEc:eee:jaecon:v:61:y:2016:i:1:p:166-184
    DOI: 10.1016/j.jacceco.2015.06.001
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    More about this item

    Keywords

    Earnings management; Unemployment risk; Rank and file employees; Labor unemployment insurance; M41; J01;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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