Income Smoothing due to Unemployment Concerns
Economic theory predicts that top executives and lower-level employees have incentives to smooth income due to compensating wage differential costs and fear of job loss, respectively. Following Agrawal and Matsa (JFE, 2013) who rely on exogenous variations in unemployment insurance benefits to exami...
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sg-smu-ink.soa_research-24272018-07-13T06:44:45Z Income Smoothing due to Unemployment Concerns NG, Jeffrey RANASINGHE, Tharindra SHI, Guifeng YANG, I-Hwa Economic theory predicts that top executives and lower-level employees have incentives to smooth income due to compensating wage differential costs and fear of job loss, respectively. Following Agrawal and Matsa (JFE, 2013) who rely on exogenous variations in unemployment insurance benefits to examine how unemployment concerns affect corporate leverage, we examine the link between such benefits and income smoothing. We find that when unemployment insurance benefits are higher and concerns about unemployment are hence lower, there is less income smoothing. This relation is stronger when employees face higher unemployment risk and weaker when the firms’ information and internal control environments are strong. Our study contributes to the literature by showing that labor market policies have a significant, likely unintended externality on corporate financial reporting. 2015-02-01T08:00:00Z text application/pdf https://ink.library.smu.edu.sg/soa_research/1428 https://ink.library.smu.edu.sg/context/soa_research/article/2427/viewcontent/SSRN_id2528972.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University Income Smoothing Unemployment insurance Accounting Labor Economics |
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Income Smoothing Unemployment insurance Accounting Labor Economics NG, Jeffrey RANASINGHE, Tharindra SHI, Guifeng YANG, I-Hwa Income Smoothing due to Unemployment Concerns |
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Economic theory predicts that top executives and lower-level employees have incentives to smooth income due to compensating wage differential costs and fear of job loss, respectively. Following Agrawal and Matsa (JFE, 2013) who rely on exogenous variations in unemployment insurance benefits to examine how unemployment concerns affect corporate leverage, we examine the link between such benefits and income smoothing. We find that when unemployment insurance benefits are higher and concerns about unemployment are hence lower, there is less income smoothing. This relation is stronger when employees face higher unemployment risk and weaker when the firms’ information and internal control environments are strong. Our study contributes to the literature by showing that labor market policies have a significant, likely unintended externality on corporate financial reporting. |
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NG, Jeffrey RANASINGHE, Tharindra SHI, Guifeng YANG, I-Hwa |
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NG, Jeffrey RANASINGHE, Tharindra SHI, Guifeng YANG, I-Hwa |
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NG, Jeffrey |
title |
Income Smoothing due to Unemployment Concerns |
title_short |
Income Smoothing due to Unemployment Concerns |
title_full |
Income Smoothing due to Unemployment Concerns |
title_fullStr |
Income Smoothing due to Unemployment Concerns |
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Income Smoothing due to Unemployment Concerns |
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income smoothing due to unemployment concerns |
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Institutional Knowledge at Singapore Management University |
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2015 |
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https://ink.library.smu.edu.sg/soa_research/1428 https://ink.library.smu.edu.sg/context/soa_research/article/2427/viewcontent/SSRN_id2528972.pdf |
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