Accounting Disclosures and Employee Wages

54 Pages Posted: 23 Jan 2018 Last revised: 21 Oct 2018

See all articles by John (Jianqiu) Bai

John (Jianqiu) Bai

Northeastern University - D'Amore-McKim School of Business

Matthew Serfling

University of Tennessee

Sarah Shaikh

University of Washington

Date Written: October 16, 2018

Abstract

We examine the relation between a firm’s accounting disclosures and the wages paid to its employees. Using establishment-level Census data, we document that firms with greater information risk arising from poorer disclosures, measured by less readable annual reports and the absence of management earnings forecasts, pay their employees more. This relation is stronger when employees own more stock in their firm, bear greater information acquisition costs, and have more influence in the wage-setting process. We also utilize instrumental variables and exploit the passage of Section 404 of the Sarbanes-Oxley Act as a shock to the public information available about a firm’s financial reporting environment and find evidence suggesting a causal effect of disclosures on wages. Overall, these results are consistent with the theory of compensating wage differentials, as employees appear to receive higher wages for bearing additional information risk associated with working for a firm with poorer disclosures.

Keywords: Disclosures, Employee Wages, Readability, Management Forecasts

JEL Classification: M40, M41, J31

Suggested Citation

Bai, John (Jianqiu) and Serfling, Matthew and Shaikh, Sarah, Accounting Disclosures and Employee Wages (October 16, 2018). Available at SSRN: https://ssrn.com/abstract=3103237 or http://dx.doi.org/10.2139/ssrn.3103237

John (Jianqiu) Bai

Northeastern University - D'Amore-McKim School of Business ( email )

Boston, MA 02115
United States

Matthew Serfling (Contact Author)

University of Tennessee ( email )

Haslam College of Business
Knoxville, TN 37996
United States
865-974-1952 (Phone)

Sarah Shaikh

University of Washington ( email )

Seattle, WA WA
United States

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