The Unintended Consequence of Employment Nondiscrimination Acts: Evidence from Earnings Management

67 Pages Posted: 17 Jan 2024

See all articles by Wenbin Hu

Wenbin Hu

University of Queensland - School of Business

George J. Jiang

Washington State University

Wenquan Li

Xi'an Jiaotong-Liverpool University (XJTLU) - International Business School Suzhou; University of Queensland - Business School

He Wang

Southern University of Science and Technology

Date Written: January 4, 2024

Abstract

Employment equality, an essential constituent of corporate social responsibility, has an important impact on corporate performance and decision-making. We find that U.S. state-level employment nondiscrimination acts (ENDAs), which outlaw discrimination based on sexual orientation and gender identity, lead to more accrual-based earnings management. We hypothesize that ENDAs may adversely affect firms’ operating performance, thus putting pressures on management to engage in earnings manipulation. Consistent with our conjecture, we find evidence that the staggered passage of ENDAs indeed has a negative effect on firms’ revenue and increases firms’ operating costs. We also show evidence that most of the accrual-based earnings management activities are intended to maintain current performance and avoid missing earnings thresholds. Finally, we show that the effect of ENDAs on earnings management is more pronounced for firms headquartered in conservative states and states with a higher percentage of homosexual population.

Keywords: Employment nondiscrimination acts; Earnings management; Corporate social responsibility

JEL Classification: J30; M41; K38

Suggested Citation

Hu, Wenbin and Jiang, George and Li, Wenquan and Wang, He, The Unintended Consequence of Employment Nondiscrimination Acts: Evidence from Earnings Management (January 4, 2024). Available at SSRN: https://ssrn.com/abstract=4683340 or http://dx.doi.org/10.2139/ssrn.4683340

Wenbin Hu

University of Queensland - School of Business ( email )

Australia

George Jiang

Washington State University ( email )

Department of Finance and Management Science
Carson College of Business
Pullman, WA 99-4746164
United States
509-3354474 (Phone)

HOME PAGE: http://directory.business.wsu.edu/bio.html?username=george.jiang

Wenquan Li (Contact Author)

Xi'an Jiaotong-Liverpool University (XJTLU) - International Business School Suzhou ( email )

111 Ren'ai Road
Suzhou Industrial Park
Suzhou, Jiangsu 215123
China

HOME PAGE: http://scholar.xjtlu.edu.cn/en/persons/WenquanLi

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

He Wang

Southern University of Science and Technology ( email )

1088 Xueyuan Avenue
Shenzhen, Guangdong 518055
China

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