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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Main Authors: NG, Jeffrey, RANASINGHE, Tharindra, SHI, Guifeng, YANG, I-Hwa
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Language:English
Published: Institutional Knowledge at Singapore Management University 2015
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Online Access: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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spelling 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
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Income Smoothing
Unemployment insurance
Accounting
Labor Economics
spellingShingle Income Smoothing
Unemployment insurance
Accounting
Labor Economics
NG, Jeffrey
RANASINGHE, Tharindra
SHI, Guifeng
YANG, I-Hwa
Income Smoothing due to Unemployment Concerns
description 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.
format text
author NG, Jeffrey
RANASINGHE, Tharindra
SHI, Guifeng
YANG, I-Hwa
author_facet NG, Jeffrey
RANASINGHE, Tharindra
SHI, Guifeng
YANG, I-Hwa
author_sort 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
title_full_unstemmed Income Smoothing due to Unemployment Concerns
title_sort income smoothing due to unemployment concerns
publisher Institutional Knowledge at Singapore Management University
publishDate 2015
url 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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