Labor Skill and Accounting Conservatism

50 Pages Posted: 23 Mar 2022

See all articles by Jeff Zeyun Chen

Jeff Zeyun Chen

Texas Christian University

Youngki Jang

University of Delaware

Boochun Jung

University of Hawaii at Manoa - School of Accountancy

Minyoung Noh

California State University, Los Angeles - Department of Accounting

Date Written: January 25, 2022

Abstract

We examine the relation between a firm’s reliance on high-skill workers and its accounting conservatism. We find that reliance on high-skill workers is negatively related to accounting conservatism, presumably because firms with higher labor adjustment costs are more concerned about the cost of conditional conservatism. We use a quasi-experiment based on an exogenous shock to Houston’s local labor market due to worker migration from New Orleans after Hurricane Katrina to examine the direction of causality. Cross-sectional tests support the notion that labor adjustment costs are the main driver for the negative relation between labor skill and accounting conservatism. Specifically, the relation is more pronounced when the firm i) operates in more competitive industries, ii) has a higher voluntary turnover rate, and iii) is more financially constrained. Collectively, we provide novel evidence on the interaction between labor force heterogeneity and accounting conservatism.

Keywords: Labor skill, conservatism, labor adjustment costs, competition, employee turnover, financial constrain

JEL Classification: G30, J01, M41

Suggested Citation

Chen, Jeff Zeyun and Jang, Youngki and Jung, Boochun and Noh, Minyoung, Labor Skill and Accounting Conservatism (January 25, 2022). Available at SSRN: https://ssrn.com/abstract=4017970 or http://dx.doi.org/10.2139/ssrn.4017970

Jeff Zeyun Chen

Texas Christian University ( email )

2900 Lubbock Ave
Fort Worth, TX 76109
United States

Youngki Jang

University of Delaware ( email )

Newark, DE 19716
United States

Boochun Jung (Contact Author)

University of Hawaii at Manoa - School of Accountancy ( email )

College of Business Administration
Honolulu, HI 96822
United States

Minyoung Noh

California State University, Los Angeles - Department of Accounting ( email )

Los Angeles, CA 90032-8121
United States

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