Financial Misconduct and Employee Mistreatment: Evidence from Wage Theft

55 Pages Posted: 9 Jan 2019 Last revised: 18 Nov 2020

Date Written: November 18, 2020

Abstract

I examine the relation between firms' financial conduct and wage theft. Wage theft represents the single largest form of theft committed in the United States and primarily affects firms' most vulnerable employees. I show that wage theft is more prevalent (i) when firms just meet or beat earnings targets and (ii) when executives' personal liability for wage theft decreases. Wage theft precedes financial misconduct while it is undetected, but once firms are caught engaging in wage theft they are more likely to shift to engaging in financial misconduct. My findings highlight an economically meaningful yet previously undocumented way in which firms' financial incentives relate to employee treatment.

Keywords: wage theft; real earnings management; financial misconduct; labor practices

Suggested Citation

Raghunandan, Aneesh, Financial Misconduct and Employee Mistreatment: Evidence from Wage Theft (November 18, 2020). Available at SSRN: https://ssrn.com/abstract=3307594 or http://dx.doi.org/10.2139/ssrn.3307594

Aneesh Raghunandan (Contact Author)

London School of Economics ( email )

United Kingdom

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