The Disciplining Effect of Labor Mobility: Evidence From Real Earnings Management
56 Pages Posted: 23 May 2018 Last revised: 16 Dec 2018
Date Written: December 15, 2018
We examine whether firms in industries with a more mobile labor force engage in less real earnings management to reduce expected separation costs stemming from labor turnover. Employing an occupation-based measure of labor mobility for a large sample of US firms, we show that labor mobility is negatively related to real earnings management. This relation is stronger where labor is more important for value creation and in highly competitive industries. Moreover, labor mobility is more strongly related to earnings management in years when real earnings management is expected to be a-priori higher. To alleviate endogeneity concerns we employ plausibly exogenous variation in worker mobility across states and obtain similar results. Our results suggest that labor mobility acts as a disciplining mechanism discouraging firms from engaging in real earnings management.
Keywords: real earnings management, employee relationships, labor mobility
JEL Classification: G34, J6, M41, M43
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