Financial Reporting Quality and Labor Investment Efficiency

• 成果类型: Article
• 署名作者: Jung, Boochun; Lee, Woo-Jong; Weber, David P.
• 署名单位: University of Hawaii System; University of Hawaii Manoa; Hong Kong Polytechnic University; University of Connecticut
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12053
• 发表日期: 2014
• 页码: 1047-1076
• 关键词: CORPORATE GOVERNANCE; Accounting information; market imperfections; earnings management; Accruals quality; INTERNAL CONTROL; AGENCY COSTS; cash flow; FIRMS; disclosure

摘要

We examine whether accounting quality is associated with efficient investments in labor, a key factor of production that has been largely overlooked in prior studies. We find evidence that abnormal net hiring (measured as the absolute deviation from net hiring predicted by economic fundamentals) is negatively associated with accounting quality. These results are robust to a battery of sensitivity tests and controls for other relevant factors, including labor power and other contemporaneous investments. We further examine the channels through which accounting quality improves net hiring efficiency and provide evidence that high-quality accounting reduces both overinvestment in labor (overhiring and underfiring) and underinvestment in labor (underhiring and overfiring). We also show that the effect of accounting quality on net hiring efficiency is particularly strong in highly unionized industries. Finally, we document that abnormal net hiring is costly, in that it is associated with lower future profitability. Overall, our results are consistent with higher-quality accounting facilitating more efficient investments in labor by mitigating the market frictions that stem from information asymmetry and lead to suboptimal levels of investment.