Corporate Layoffs and Accounting Conservatism

52 Pages Posted: 25 Jan 2016 Last revised: 25 Jul 2017

See all articles by Boochun Jung

Boochun Jung

University of Hawaii at Manoa - School of Accountancy

Byungki Kim

University of Queensland - Business School

Woo-Jong Lee

Seoul National University

Choong-Yuel Yoo

KAIST College of Business

Date Written: July 25, 2017

Abstract

We examine whether and how accounting conservatism plays a disciplinary role in corporate layoffs. Analyzing 722 layoff announcements in Form 8-K over the period 2004 to 2012, we first document that the level of hiring on average falls short of the optimal level (i.e., under-hiring) even before the layoff. Subsequently, the layoff further exacerbates the extent of the under-hiring from -2.2 percent to -12.9 percent, relative to its optimal level of hiring. Next, we find that accounting conservatism mitigates such inefficiency in layoff decisions. Further analyses confirm that the positive relation between conservatism and layoff efficiency is mainly driven by mitigation of the extent of under-hiring from layoffs. Finally, we find that layoff firms with more conservative accounting issue more debt around the layoff announcement, suggesting access to more debt financing as a possible channel underlying the positive impact of conservatism on layoff efficiency.

Keywords: Accounting Conservatism, Layoff, Layoff Efficiency, Restructuring, Downsizing, Form 8-K

JEL Classification: E24, G34, J53, J63, M41, M51, M54

Suggested Citation

Jung, Boochun and Kim, Byungki and Lee, Woo-Jong and Yoo, Choong-Yuel, Corporate Layoffs and Accounting Conservatism (July 25, 2017). KAIST College of Business Working Paper Series No. 2016-001, Available at SSRN: https://ssrn.com/abstract=2720148 or http://dx.doi.org/10.2139/ssrn.2720148

Boochun Jung

University of Hawaii at Manoa - School of Accountancy ( email )

College of Business Administration
Honolulu, HI 96822
United States

Byungki Kim

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Woo-Jong Lee

Seoul National University ( email )

Gwanak-ro 1, Gwanak-gu
Seoul, 151-916
Korea, Republic of (South Korea)

Choong-Yuel Yoo (Contact Author)

KAIST College of Business ( email )

85 Hoegiro, Dongdaemoon-gu
Seoul, 02455
Korea, Republic of (South Korea)

HOME PAGE: http://www.business.kaist.edu/faculty/cyoo

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