Labor Unions and Income Smoothing
45 Pages Posted: 25 Oct 2018 Last revised: 27 Oct 2018
Date Written: October 2, 2018
We study labor unions, an important stakeholder group that has not been a focus of the earnings smoothing literature. We posit that managers strike a balance between sheltering resources from employees’ profit sharing demands and catering to employees’ aversion to downside risk by smoothing earnings. We then hypothesize that a strong labor union would intensify managerial incentives to smooth earnings. Consistent with our hypothesis, we find that union strength is positively associated with earnings smoothing activities through management of both accruals and R&D expenditures.
Keywords: Labor Unions; Earnings Smoothing; Accruals Management; R&D Expenditures Management
JEL Classification: M41; M43; J53
Suggested Citation: Suggested Citation