Journal of Accounting and Economics Vol. 61 No. 1 2016
Labor unemployment insurance and earnings management
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.
- DOI
- 10.1016/j.jacceco.2015.06.001
- Volume
- 61
- Issue
- 1
- Pages
- 166-184
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref