Strategic Accounting Choice Around Firm-Level Labor Negotiations

54 Pages Posted: 24 Nov 2010 Last revised: 18 Sep 2014

See all articles by Beatriz Garcia Osma

Beatriz Garcia Osma

Universidad Carlos III de Madrid - Department of Business Administration

Araceli Mora

University of Valencia - Department of Accounting

Ana María Sabater Marcos

Miguel Hernandez University

Date Written: November 23, 2010

Abstract

Prior literature argues that managers make opportunistic income-decreasing accounting choices to limit the concessions made to trade unions. However, empirical research to date presents mixed evidence, potentially due to the theoretical approach common in prior work that views labor bargaining as a one-shot game in nature. Using a sample of US firms that engage in firm-level labor collective agreement negotiations, we study whether managers act strategically to reduce the transfer of wealth to employees, and its consequences over investment efficiency. We expect that the repeated nature of this negotiation leads to cooperation among the parties and limits the incentives for earnings manipulation, particularly, over long-windows. Our findings suggest that managers take both real and accounting actions, but that these choices are informative rather than opportunistic. In particular, we find evidence consistent with strategic timing of the negotiation and with increased conditional conservatism in the year when the agreement is signed. We do not find evidence of earnings manipulation through discretionary accruals or of decreased investment efficiency around labor bargaining.

Keywords: Accounting choice, earnings quality, strategic timing, labor bargaining, investment efficiency

JEL Classification: M41, J30, J51

Suggested Citation

Garcia Osma, Beatriz and Mora, Araceli and Sabater Marcos, Ana María, Strategic Accounting Choice Around Firm-Level Labor Negotiations (November 23, 2010). Available at SSRN: https://ssrn.com/abstract=1713957 or http://dx.doi.org/10.2139/ssrn.1713957

Beatriz Garcia Osma (Contact Author)

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

Araceli Mora

University of Valencia - Department of Accounting ( email )

Edificio Departamental Oriental
Avda. dels Tarongers, s/n
Valencia 46071
Spain

Ana María Sabater Marcos

Miguel Hernandez University ( email )

Elche Campus, La Galia Building
Avda. del Ferrocarril, s/n
03202 Elche
United States

HOME PAGE: http://www.umh.es

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