Minimum Wages and Non-Listed Firm's Earnings Management: Evidence from a Geographic Discontinuity Design

57 Pages Posted: 5 Jan 2022

See all articles by Junyi Xiang

Junyi Xiang

Huazhong University of Science and Technology

Dongmin Kong

School of Economics, Huazhong University of Science and Technology

Wei Yang

East China University of Science and Technology (ECUST) - School of Business

Date Written: January 3, 2022

Abstract

We examine how and to what extent minimum wage shapes non-listed firms’ earnings information production. To identify the causality, we introduce an improved geographic information system technique to locate firms in areas that straddle the continuities of county borders and then exploit discontinuities of minimum wage at county borders. We find that firms significantly manage earnings information upward as response to increases in minimum wages, particularly for firms with financial constraints. Our findings shed light on the effects of labor policy on the information production of firms and provide policy implications to regulators concerned with the allocation efficiency of capital markets.

Keywords: Earnings management, Geographic discontinuities, Minimum wage.

JEL Classification: G38; G39; J31; M41

Suggested Citation

Xiang, Junyi and Kong, Dongmin and Yang, Wei, Minimum Wages and Non-Listed Firm's Earnings Management: Evidence from a Geographic Discontinuity Design (January 3, 2022). Journal of Accounting and Public Policy, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3999372

Junyi Xiang

Huazhong University of Science and Technology ( email )

1037 Luoyu Rd
Wuhan, Hubei 430074
China

Dongmin Kong (Contact Author)

School of Economics, Huazhong University of Science and Technology ( email )

Bldg. of Econ. School, Louyu Rd. 1037#
HUST, Hongshan Dist.
Wuhan, Hubei 430074
China

Wei Yang

East China University of Science and Technology (ECUST) - School of Business

Shanghai
China

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