Abstract

http://ssrn.com/abstract=2158081
 
 

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Labor Unions and Income Smoothing


Sophia J. W. Hamm


Ohio State University (OSU) - Fisher College of Business

Boochun Jung


University of Hawaii at Manoa

Woo-Jong Lee


Hong Kong Polytechnic University - School of Accounting and Finance

November 25, 2013


Abstract:     
Accounting literature suggests that managers have incentives to manage earnings in a way that will enhance their relationship with stakeholders. While the literature has overwhelmingly focused on equity market participants, we study another important stakeholder group: labor unions. We predict that labor unions strengthen managerial incentives for income smoothing. Managers attempt to manage earnings downwards to shelter firm resources from rent-seeking labor unions. Managers also have incentives to manage earnings upwards in bad times to avoid unions’ greater demand for compensation for expected bankruptcy risk perceived from worse operating performance. We find that income smoothing activities are positively associated with labor union strength, where such activities are measured by both discretionary income smoothing and R&D investment adjustments. The results are robust to endogeneity concerns and the use of various alternative measures of union strength.

Number of Pages in PDF File: 46

Keywords: Labor unions, Income smoothing, Earnings management

JEL Classification: M41, M43, J53

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Date posted: October 7, 2012 ; Last revised: November 26, 2013

Suggested Citation

Hamm, Sophia J. W. and Jung, Boochun and Lee, Woo-Jong, Labor Unions and Income Smoothing (November 25, 2013). Available at SSRN: http://ssrn.com/abstract=2158081 or http://dx.doi.org/10.2139/ssrn.2158081

Contact Information

Sophia J. W. Hamm (Contact Author)
Ohio State University (OSU) - Fisher College of Business ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-2529 (Phone)

Boochun Jung
University of Hawaii at Manoa ( email )
College of Business Administration
Honolulu, HI 96822
United States
(808) 956-8461 (Phone)
Woo-Jong Lee
Hong Kong Polytechnic University - School of Accounting and Finance ( email )
Hung Hom Kowloon
Hong Kong
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