Employee Cash Profit-Sharing and Earnings Management

Forthcoming at European Accounting Review

45 Pages Posted: 20 Jan 2021

See all articles by Dongmin Kong

Dongmin Kong

Department of Finance, Huazhong University of Science and Technology; School of Finance, Zhongnan University of Economics and Law

Ni Qin

School of Economics, Huazhong University of Science and Technology

Wei Yang

East China University of Science and Technology (ECUST) - School of Business

Jian Zhang

School of Business and Management, Shanghai International Studies University

Date Written: November 26, 2020

Abstract

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

Kong, Dongmin and Qin, Ni and Yang, Wei and Zhang, Jian, Employee Cash Profit-Sharing and Earnings Management (November 26, 2020). Forthcoming at European Accounting Review, Available at SSRN: https://ssrn.com/abstract=3737891

Dongmin Kong

Department of Finance, Huazhong University of Science and Technology ( email )

Wuhan, Hubei 430074
China

School of Finance, Zhongnan University of Economics and Law ( email )

Wuhan, Hubei 430073
China

Ni Qin

School of Economics, Huazhong University of Science and Technology ( email )

1037# Luoyu Road, Hongshan Dist.
Wuhan, Hubei 430074
China

Wei Yang

East China University of Science and Technology (ECUST) - School of Business

Shanghai
China

Jian Zhang (Contact Author)

School of Business and Management, Shanghai International Studies University ( email )

550 Dalian Road (West)
Shanghai, Shanghai 200083
China

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