Publication Type
Working Paper
Publication Date
2-2015
Abstract
Economic theory predicts that top executives and lower-level employees have incentives to smooth income due to compensating wage differential costs and fear of job loss, respectively. Following Agrawal and Matsa (JFE, 2013) who rely on exogenous variations in unemployment insurance benefits to examine how unemployment concerns affect corporate leverage, we examine the link between such benefits and income smoothing. We find that when unemployment insurance benefits are higher and concerns about unemployment are hence lower, there is less income smoothing. This relation is stronger when employees face higher unemployment risk and weaker when the firms’ information and internal control environments are strong. Our study contributes to the literature by showing that labor market policies have a significant, likely unintended externality on corporate financial reporting.
Keywords
Income Smoothing, Unemployment insurance
Discipline
Accounting | Labor Economics
Research Areas
Corporate Reporting and Disclosure
Publisher
Singapore Management University
City or Country
Singapore
Citation
NG, Jeffrey; RANASINGHE, Tharindra; SHI, Guifeng; and YANG, I-Hwa.
Income Smoothing due to Unemployment Concerns. (2015).
Available at: https://ink.library.smu.edu.sg/soa_research/1428
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.