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Kong, Dongmin; Qin, Ni; Yang, Wei; Zhang, Jian
The European accounting review, 05/2022, Letnik: 31, Številka: 3Journal Article
This paper examines how a firm's employment policy, particularly employee cash profit-sharing plans, affects its financial reporting. We find that firms with employee cash profit-sharing programs are more likely to engage in downward earnings management to reduce labor costs, especially with decreasing performance. This effect is more evident in firms with higher labor costs and human-capital reliant firms. Our findings are robust to a variety of model specifications and endogeneity problems.
