Unemployment Insurance Benefits and Income Smoothing

43 Pages Posted: 2 Aug 2014 Last revised: 12 May 2019

See all articles by Jeffrey Ng

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance

Tharindra Ranasinghe

American University

Guifeng Shi

Shanghai Jiao Tong University (SJTU)

Holly Yang

Singapore Management University - School of Accountancy

Date Written: January 2019

Abstract

Labor unemployment insurance reduces unemployment concerns. We argue that these benefits
moderate incentives to smooth earnings to reduce employees’ concerns about unemployment risk.
Using exogenous variations in unemployment insurance benefits, we find evidence consistent with
this argument. We also find that that link between unemployment insurance benefits and income
smoothing is stronger when there is higher unemployment risk and when the firm is likely to
employ more low-wage workers, who find unemployment insurance benefits especially useful.
Our paper contributes to the literature by showing that public policy decisions such as
unemployment insurance have significant, albeit probably unintended, externalities on corporate
financial reporting.

Keywords: Income smoothing, Unemployment insurance

JEL Classification: M41, J65, H32

Suggested Citation

Ng, Jeffrey and Ranasinghe, Tharindra and Shi, Guifeng and Yang, Holly, Unemployment Insurance Benefits and Income Smoothing (January 2019). Journal of Accounting and Public Policy, 38 (1), (2019), 15-30., Available at SSRN: https://ssrn.com/abstract=2474952 or http://dx.doi.org/10.2139/ssrn.2474952

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Tharindra Ranasinghe

American University ( email )

United States

Guifeng Shi

Shanghai Jiao Tong University (SJTU) ( email )

Antai College of Economics and Management
Shanghai 200052
China

Holly Yang (Contact Author)

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

HOME PAGE: http://sites.google.com/site/holly0417phd/

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