The Economic Consequences of Financial Misreporting: Evidence from Employee Perspective

https://doi.org/10.2308/JMAR-2020-032

Posted: 19 Mar 2021

See all articles by Xinghua Gao

Xinghua Gao

Washington State University

Yonghong Jia

Iowa State University

Date Written: January 20, 2021

Abstract

This study investigates the economic consequences of financial misreporting from the employee perspective. Specifically, we examine two employee reactions: (1) exiting from misreporting firms and (2) reducing holding of employer stock, in both the misreporting period and the post-restatement period. We find an increase in employee turnover and a decrease in employee holding of employer stock in the post-restatement period (restatement effect) and some evidence that employees start to react in the period of misreporting (misreporting effect). We also find some evidence that the misreporting effect varies with employee tenure in the misreporting period and the restatement effect varies with the severity of misreporting in the post-restatement period. We further show that our results are not driven by labor demand, increased likelihood of executive turnover, declining stock prices, internal control weakness disclosure, and poor firm performance.

Keywords: Financial Misreporting, Employee Responses, Employee Turnover, Employee Holding of Employer Stock

JEL Classification: M41, M55, J33, J63

Suggested Citation

Gao, Xinghua and Jia, Yonghong, The Economic Consequences of Financial Misreporting: Evidence from Employee Perspective (January 20, 2021). https://doi.org/10.2308/JMAR-2020-032, Available at SSRN: https://ssrn.com/abstract=3781112

Xinghua Gao (Contact Author)

Washington State University ( email )

Department of Accounting
Carson College of Business
Pullman, WA 99163
United States

Yonghong Jia

Iowa State University ( email )

ames, IA Iowa 50010
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
366
PlumX Metrics