International Reporting Transparency and Labor Market Outcomes

Abstract

Financial reporting transparency can affect labor markets directly by mitigating information asymmetries and optimizing the matching of heterogeneous firms and employees (matching efficiency channel) and indirectly through the effect of transparency on firms' capital inputs (capital utilization channel). Using the mandatory IFRS adoption by European Union countries as a setting to proxy for enhanced reporting transparency, we document subsequent increases in labor productivity and wages for manufacturing industries in member countries. The main effect is mostly driven by increases in output rather than decreases in labor demand and is amplified by changes in earnings quality after the IFRS adoption. Collectively, our results underscore that the benefits of a cross-country increase in reporting transparency go beyond the effects on capital markets and corporate investments, with implications for labor markets equilibria.

Keywords: International labor markets; International reporting standards; IFRS; European Union.

JEL Classification: G14, G15, G30, K22, M41