Labor and Finance: The Role of Financial Reporting Quality

56 Pages Posted: 4 Nov 2019

See all articles by Boochun Jung

Boochun Jung

University of Hawaii - School of Accountancy

Woo-Jong Lee

Seoul National University

David P. Weber

University of Connecticut - Department of Accounting

Daniel Yang

Ohio State University (OSU) - Fisher College of Business

Date Written: October 24, 2019

Abstract

We examine the role of high quality financial reporting in facilitating corporate employment. We focus on firms with maturing long-term debt, which creates refinancing risk. While refinancing risk is associated with reductions in net hiring, we find that higher quality financial reporting mitigates this effect. This result is stronger when labor market frictions are more significant (e.g., for firms with high labor intensity or unionized labor), and when information and agency problems are otherwise more severe (e.g., for firms with higher likelihoods of default or more heterogeneous debt structures). We also document that higher quality financial reporting improves firms’ abilities to obtain debt in the face of refinancing risk and reduces the cost of debt among those that obtain it. We show that our results extend beyond firm-level refinancing risk to more general changes in the economy-wide supply of credit. Finally, we supplement our main analyses with a quasi-natural experiment using the implementation of SFAS 131. Overall, our evidence suggests a specific financing channel through which financial reporting quality facilitates corporate employment.

Keywords: financial reporting quality; labor; employment; hiring; refinancing; debt maturity

JEL Classification: G30; J01; M41

Suggested Citation

Jung, Boochun and Lee, Woo-Jong and Weber, David P. and Yang, Daniel, Labor and Finance: The Role of Financial Reporting Quality (October 24, 2019). Available at SSRN: https://ssrn.com/abstract=3474827

Boochun Jung

University of Hawaii - School of Accountancy ( email )

College of Business Administration
Honolulu, HI 96822
United States

Woo-Jong Lee

Seoul National University ( email )

Gwanak-ro 1, Gwanak-gu
Seoul, 151-916
Korea, Republic of (South Korea)

David P. Weber (Contact Author)

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

Daniel Yang

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
77
Abstract Views
308
rank
318,991
PlumX Metrics