Labour Mobility and Conditional Conservative Accounting

Firms having low employee labour mobility face demands by employees to signal employment stability. We argue that one way of addressing such demands is by adopting conditional conservative accounting to convey financial prudence and reduce the perceived future unemployment risk. However, conditional conservative accounting also imposes costs on firms, potentially limiting its use. Using a sample of US firms, we examine how labour mobility influences conditional conservative accounting. Our findings show that firms with lower labour mobility exhibit more conditional conservative accounting than firms with more mobile employees. This relationship is especially pronounced when employees face higher unemployment risk, such as when firms are financially constrained or compete in highly competitive product markets.