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Employee effort and earnings management

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  • Haga, Jesper
  • Huhtamäki, Fredrik
  • Sundvik, Dennis

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.

Suggested Citation

  • Haga, Jesper & Huhtamäki, Fredrik & Sundvik, Dennis, 2022. "Employee effort and earnings management," Global Finance Journal, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:glofin:v:53:y:2022:i:c:s104402832100020x
    DOI: 10.1016/j.gfj.2021.100622
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    More about this item

    Keywords

    Earnings discontinuities; Earnings management; Loss avoidance;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General

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