The Disciplining Effect of Labor Mobility: Evidence From Real Earnings Management

56 Pages Posted: 23 May 2018 Last revised: 16 Dec 2018

See all articles by Lars Helge Hass

Lars Helge Hass

Lancaster University - Management School; University of Iowa - Henry B. Tippie College of Business

Paul Hribar

University of Iowa - Henry B. Tippie College of Business

Fani Kalogirou

University of Oxford - Said Business School

Date Written: December 15, 2018

Abstract

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

Suggested Citation

Hass, Lars Helge and Hribar, Paul and Kalogirou, Fani, The Disciplining Effect of Labor Mobility: Evidence From Real Earnings Management (December 15, 2018). Available at SSRN: https://ssrn.com/abstract=3089993 or http://dx.doi.org/10.2139/ssrn.3089993

Lars Helge Hass (Contact Author)

Lancaster University - Management School ( email )

Department of Accounting and Finance
Lancaster, LA1 4YX
United Kingdom

University of Iowa - Henry B. Tippie College of Business ( email )

Dept. of Accounting
Iowa City, IA 52242-1000
United States

Paul Hribar

University of Iowa - Henry B. Tippie College of Business ( email )

Dept. of Accounting
Iowa City, IA 52242-1000
United States
319-335-1008 (Phone)

Fani Kalogirou

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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