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Evidence of income-decreasing earnings management before labour negotiations within the firm

Author

Listed:
  • Araceli Mora Enguídanos

    (Universidad de Valencia)

  • Ana Sabater Marcos

    (Universidad Miguel Hernández)

Abstract

The "political costs" hypothesis predicts that labour bargaining creates incentives to reduce accounting earnings in order to avoid salary demands. Previous studies in countries with a "close shop system", such as the U.S. and Canada, have obtained mixed results. We argue that the political costs hypothesis is better suited to the "open shop system" of Continental European countries. Using a sample of Spanish companies, Jones (1991) model and its extensions are used to analyse total and discretionary accruals around the time of labour negotiations. The evidence that we obtain is consistent with the hypothesis that managers depress earnings prior to negotiations.

Suggested Citation

  • Araceli Mora Enguídanos & Ana Sabater Marcos, 2008. "Evidence of income-decreasing earnings management before labour negotiations within the firm," Investigaciones Economicas, Fundación SEPI, vol. 32(2), pages 201-230, May.
    • Handle: RePEc:iec:inveco:v:32:y:2008:i:2:p:201-230
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    More about this item

    Keywords

    Accruals; earnings management; collective bargaining.;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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