Employment Protection Legislation, Investment, Earnings Management, and Corporate Performance

59 Pages Posted: 29 Dec 2016 Last revised: 14 Oct 2018

See all articles by Henock Louis

Henock Louis

Pennsylvania State University - Smeal College of Business

Oktay Urcan

University of Illinois at Urbana-Champaign

Date Written: October 9, 2018

Abstract

Firms respond to laws increasing employee protection by becoming more selective in their investment decisions, reducing both employment and capital expenditures. They use earnings management to meet earnings benchmarks less after adoptions of employment protection laws (EPL) while experiencing significantly higher returns on investments. Moreover, post-EPL reported earnings are more likely to meet or exceed analyst earnings expectations and firms experience superior post-EPL adoption abnormal stock returns, consistent with analysts and investors not expecting the superior operating performance associated with EPL.

Keywords: Employment protection, Capital Expenditures, Operating performance, Earnings management

JEL Classification: J31, K31, M41

Suggested Citation

Louis, Henock and Urcan, Oktay, Employment Protection Legislation, Investment, Earnings Management, and Corporate Performance (October 9, 2018). Available at SSRN: https://ssrn.com/abstract=2891040 or http://dx.doi.org/10.2139/ssrn.2891040

Henock Louis

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802-3306
United States
814-865-4160 (Phone)
814-863-8393 (Fax)

Oktay Urcan (Contact Author)

University of Illinois at Urbana-Champaign ( email )

515 E. Gregory Drive
4009 BIF MC-520
Champaign, IL 61820
United States
217-265-0383 (Phone)
217-244-0902 (Fax)

HOME PAGE: http://business.illinois.edu/profile/oktay-urcan/

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