Unemployment Risk and Accounting Conservatism
46 Pages Posted: 30 Dec 2019 Last revised: 17 Apr 2020
Date Written: December 8, 2019
We examine the effect of labor unemployment risk on corporate accounting conservatism by exploring the relationship between unemployment insurance benefits and conservatism. We find that lower perceived unemployment risk (i.e. higher unemployment insurance benefits) is associated with lower conditional conservatism. The effect is more pronounced when employees are more exposed to unemployment risk and when the firms face higher bankruptcy or litigation risk.
Keywords: Labor Unemployment Risk, Corporate Accounting Policy, Conditional Accounting Conservatism, Bankruptcy Risk, Litigation Risk
JEL Classification: G30, G34, G38
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