Minimum Wages and Non-Listed Firm's Earnings Management: Evidence from a Geographic Discontinuity Design
57 Pages Posted: 5 Jan 2022
Date Written: January 3, 2022
Abstract
We examine how and to what extent minimum wage shapes non-listed firms’ earnings information production. To identify the causality, we introduce an improved geographic information system technique to locate firms in areas that straddle the continuities of county borders and then exploit discontinuities of minimum wage at county borders. We find that firms significantly manage earnings information upward as response to increases in minimum wages, particularly for firms with financial constraints. Our findings shed light on the effects of labor policy on the information production of firms and provide policy implications to regulators concerned with the allocation efficiency of capital markets.
Keywords: Earnings management, Geographic discontinuities, Minimum wage.
JEL Classification: G38; G39; J31; M41
Suggested Citation: Suggested Citation