Enforceability of non-compete covenants, discretionary investments, and financial reporting practices: Evidence from a natural experiment

• 成果类型: Article
• 署名作者: Chen, Tai-Yuan; Zhang, Guochang; Zhou, Yi
• 署名单位: Hong Kong University of Science & Technology; University of Hong Kong; Fudan University
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2017.11.012
• 发表日期: 2018
• 关键词: real activities manipulation; beat analyst forecasts; earnings management; incomplete contracts; corporate governance; executive incentives; Managerial ability; ceo turnover; market share; performance

摘要

Non-compete covenants are widely used in employment contracts to promote employee stability. Using legal amendments of non-compete enforceability as a natural experiment, we find that as non-compete enforceability increases, firms display an increased likelihood of meeting short-term earnings benchmarks, lower discretionary expenditures, and declining future performance. These effects are more pronounced when CEOs have lower ability or shorter tenures, and when firms have more growth opportunities or operate in localized industries. Our results suggest that managers actively adapt investment and financial reporting practices to the changing environment that affects their contractual relations with firms. (C) 2017 Elsevier B.V. All rights reserved.