Employee effort and earnings management

Jesper Haga, Fredrik Huhtamäki, Dennis Sundvik*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

Abstract

In this study, we examine the relationship between employee effort within the firm and earnings management, using data on working hours and discretionary accruals. With higher employee effort, we find less earnings management among U.S. firms. This result is stronger when earnings are more predictable and persists after we control for endogeneity. We also find smaller earnings discontinuities with higher employee effort. Our domestic results remain the same with a global sample. Our results suggest that earnings management enables benchmark beating with greater precision than can high employee effort alone, but also that high-effort firms may be misclassified as earnings manipulators.
Original languageEnglish
Article number100622
Peer-reviewed scientific journalGlobal Finance Journal
ISSN1044-0283
DOIs
Publication statusPublished - 13.02.2021
MoE publication typeA1 Journal article - refereed

Keywords

  • 512 Business and Management
  • Earnings discontinuities
  • Earnings management
  • Loss avoidance

Sustainable Development Goals

  • GOAL 03: Good Health and Well-being

Areas of Strength and Areas of High Potential (AoS and AoHP)

  • AoS: Financial management, accounting, and governance

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