Employee Cash Profit-Sharing and Earnings Management
Forthcoming at European Accounting Review
45 Pages Posted: 20 Jan 2021
Date Written: November 26, 2020
This paper examines how a firm’s employment policy, particularly employee cash profit-sharing plans, affects its financial reporting. We find that firms with employee cash profit-sharing programs are more likely to engage in downward earnings management to reduce labor costs, especially with decreasing performance. This effect is more evident in firms with higher labor costs and human-capital reliant firms. Our findings are robust to a variety of model specifications and endogeneity problems.
Keywords: Employee; Stakeholder; Earnings Management; Cash Profit Sharing
JEL Classification: G34
Suggested Citation: Suggested Citation