Labor Unemployment Insurance and Earnings Management

48 Pages Posted: 30 Jul 2014 Last revised: 5 Jun 2015

See all articles by Yiwei Dou

Yiwei Dou

New York University (NYU) - Department of Accounting

Mozaffar Khan

Causeway Capital Management, LLC

Youli Zou

University of Connecticut

Multiple version iconThere are 2 versions of this paper

Date Written: June 4, 2015

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.

Keywords: Earnings management, labor economics, unemployment risk

Suggested Citation

Dou, Yiwei and Khan, Mozaffar and Zou, Youli, Labor Unemployment Insurance and Earnings Management (June 4, 2015). Available at SSRN: https://ssrn.com/abstract=2473241 or http://dx.doi.org/10.2139/ssrn.2473241

Yiwei Dou

New York University (NYU) - Department of Accounting ( email )

40 West 4th Street
Suite 10-180
New York, NY 10012
United States

Mozaffar Khan (Contact Author)

Causeway Capital Management, LLC

Youli Zou

University of Connecticut ( email )

School of Business
Storrs, CT 06269-2041
United States

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