Opaque Financial Reporting due to Unemployment Concerns

Opaque Financial Reporting due to Unemployment Concerns

This paper examines the link between rank-and-file employees’ unemployment concerns and financial reporting opacity. Following Agrawal and Matsa (JFE, 2013), we use exogenous variations in state unemployment insurance benefits to capture changes to unemployment concerns. We find that when unemployme...

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Bibliographic Details
Main Authors: NG, Jeffrey, RANASINGHE, Tharindra, SHI, Guifeng, YANG, Holly I.
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2015
Subjects:
Opacity
Transparency
Financial Reporting
Unemployment insurance
Accounting
Corporate Finance
Online Access:https://ink.library.smu.edu.sg/soa_research/1431
https://ink.library.smu.edu.sg/context/soa_research/article/2430/viewcontent/OpaqueFinReportUnemploymentConcerns_2015.pdf
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Institution: Singapore Management University
Language: English
Description
Summary:This paper examines the link between rank-and-file employees’ unemployment concerns and financial reporting opacity. Following Agrawal and Matsa (JFE, 2013), we use exogenous variations in state unemployment insurance benefits to capture changes to unemployment concerns. We find that when unemployment concerns are lower, there is less opaque financial reporting. This relation is stronger when workers face higher unemployment risk, labor union participation is high, and executives have higher equity incentives. Using Tobin’s Q to capture firm value, we also find that the economic rationale to engage in opaque financial reporting reduces when unemployment benefits are high. Our findings suggest that labor market policies have a significant, likely unintended, positive externality on corporate reporting.

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