Skilled Labor Risk and Financial Reporting Quality
1 Pages Posted: 18 Sep 2016
Date Written: September 16, 2016
In this paper we study how risk related to a firm’s potential failure in attracting and retaining skilled labor affects financial reporting quality. We measure skilled labor risk by the intensity of related discussions in 10-Ks and find that information transparency decreases when skilled labor risk increases. In particular, firms with a higher level of skilled labor risk have less smoothed earnings and lower earnings persistence, are less comparable to industry peers, and have less readable financial statements. We also find that firms are more conservative and are more likely to manage earnings downward when facing higher skilled labor risk. Our results shed light on the import role of human capital in shaping corporate financial reporting quality.
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