Earnings Management Incentives and the Asymmetric Behavior of Labor Costs: Evidence from a Non-US Setting

54 Pages Posted: 3 Aug 2009

See all articles by Bart Dierynck

Bart Dierynck

Tilburg University

Annelies Renders

BI Norwegian School of Business

Date Written: July 30, 2009

Abstract

Earlier studies have shown that costs behave asymmetrically. Despite the fact that managerial intent is postulated to be an important driver, incentive issues have been largely ignored in the cost asymmetry literature. This paper examines the relationship between earnings management incentives and labor cost asymmetry in a sample of Belgian private companies during the period 1994 to 2006. We find that companies with earnings management incentives have a more symmetric cost pattern than companies without these incentives. However, this trend towards more symmetry is influenced by the extent to which companies use accruals to manage earnings. Further tests using detailed employee data show that managers with earnings management incentives are concerned with cost-cutting while those without earnings management incentives avoid firing employees to preserve their status.

Keywords: cost asymmetry, earnings management, labor costs

JEL Classification: M41

Suggested Citation

Dierynck, Bart and Renders, Annelies, Earnings Management Incentives and the Asymmetric Behavior of Labor Costs: Evidence from a Non-US Setting (July 30, 2009). AAA 2010 Management Accounting Section (MAS) Meeting Paper, Available at SSRN: https://ssrn.com/abstract=1441250 or http://dx.doi.org/10.2139/ssrn.1441250

Bart Dierynck (Contact Author)

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Annelies Renders

BI Norwegian School of Business ( email )

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