Who Experiences Financial Reporting Pressure?

Abstract

Prior studies show that senior managers (i.e., CEO, CFO, and board members) face financial and vocational pressure to meet earnings expectations, but relatively little is known about how financial reporting pressure impacts the average employee. Using employee satisfaction ratings from Glassdoor.com, we find that, compared with firms facing low financial reporting pressure, firms facing high pressure experience a decrease in employee satisfaction ratings in the fourth quarter of the fiscal year. These results suggest that managers transmit financial reporting pressure to employees at the end of the year as the pressure to meet annual earnings benchmarks increases. When we partition the sample on employee characteristics, results suggest that non-managerial employees and those with shorter tenure have increased dissatisfaction in periods of financial reporting pressure. When we split the sample on firm characteristics, we observe a more significant decrease in employee satisfaction ratings at firms with nonunionized employment and fewer employee benefits. Finally, we find that employee satisfaction is positively associated with future job applications, indicating that financial reporting pressure may limit firms’ access to human capital.

Keywords: Earnings expectations, reporting pressure, real activities earnings management, employee satisfaction, Glassdoor

JEL Classification: M1, M40, M41