11 Financial Accounting 4: Accounting Issues Related to Labor, Politics, and Environments

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    Labor leverage, financial statement comparability, and corporate employment
    ( 2020-08-22) Zhang, Jiarui Iris ; Jung, Boochun ; Wang, Yiding ; Kim, Byungki
    We examine how labor-induced operating leverage shapes managers' decision to adopt more comparable financial statement. We hypothesize that firms subject to higher labor-induced operating leverage are more likely to adopt more comparable financial statements in order to facilitate more timely employment adjustment which reduces firm risk related to labor leverage. Consistent with our hypothesis, we find that proxies for labor-induced operating leverage, such as labor unions, labor intensity, and labor share are positively related to financial statement comparability. We also find that financial statement comparability increases the sensitivity of hiring to performance change, particularly, for negative operating performance, supporting our notion that financial statement comparability helps managers' timelier labor adjustment. Last, we examine whether the improved comparability prevents massive layoffs thanks to continuously more timely employment adjustment. Consistent with our prediction, we find that comparability reduces the likelihood of large-scale layoffs.
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    Labor Unions and Goodwill Impairment
    ( 2020-08-19) Kallousa, Najlaa ; Jung, Boochun ; Warsame, Hussein
    We explore whether managers of unionized firms tend to reduce reported earnings by reporting goodwill impairment losses for a unique group of firms experiencing mergers and acquisitions. We hypothesize that the existence and strength of labor unions are positively linked to the likelihood, frequency, and amount of goodwill impairment. We document that the likelihood of goodwill impairment is positively linked to labor unions, suggesting that managers facing strong unions are more likely to recognize goodwill impairment. Further, we document that the frequency and amount of goodwill impairment are larger for unionized firms, suggesting that strong unions promote managerial incentives to recognize goodwill impairment losses more frequently and to a larger extent.
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    The usefulness of accrual-based surpluses in the Canadian public sector
    ( 2020-08-17) Farshadfar, Shadi ; Schneider, Thomas ; Bewley, Kathryn
    This paper investigates how useful accrual-based surpluses are when predicting future cash flows and surpluses in the context of the Canadian public sector. We provide evidence that surpluses incrementally enhance the ability of operating cash flows to predict future cash flows and surpluses. Analysis of our accrual quality model illustrates that in the public sector, accruals accounting is useful in mitigating the noise in operating cash flows. We also find that decomposing surpluses into operating cash flows and accruals enhances the ability of surpluses to forecast future cash flows and surpluses. Therefore, we conclude that aggregate and disaggregated surpluses are positively related to both relevance and reliability. We also find a lack of test results to support the presence of conservatism in the Canadian public sector, and confirm that the usefulness of surpluses in making predictions is independent of selected control factors.
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    CEOs' Prosocial Behavior, Their Careers and Corporate Policies
    ( 2020-08-16) Ge, Weili ; Feng, Mei ; Ling, Zhejia ; Loh, Wei Ting
    This paper examines the association of CEOs' prosocial behavior with their career paths and corporate policies. Using individuals' involvement with charitable organizations as a proxy for prosocial behavior, we find that prosocial individuals are promoted to Chief Executive Officers (CEOs) faster than non-prosocial individuals. In addition, firms with prosocial CEOs tend to have lower executive subordinate turnovers, implement more employee-friendly policies, experience higher customer satisfaction, and engage in more socially responsible activities. We also find that firms with prosocial CEOs have higher firm value. These results are corroborated when we compare changes in corporate policies and firm value around different types of CEO turnovers: a prosocial CEO replacing a non-prosocial CEO vs. other types of CEO turnovers. In sum, our results suggest that prosocial CEOs are more likely to make corporate decisions that benefit a wide range of firm stakeholders.
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    Short Selling, Margin Trading, and Corporate Social Responsibility
    ( 2020-08-15) Liang, Xiao ; Chen, Xiaomeng
    We examine whether firms use CSR activities to signal information about their future prospects to investors and other stakeholders using the pilot program of short selling and margin trading introduced by the China Securities Regulatory Commission in 2010 as a quasi-natural experiment. This pilot program imposes non-fundamentally driven pressure on the stock prices of the pilot firms. We find that the pilot firms enhance their CSR performance to respond to the exogenous shock of the sudden removal of the short-selling and margin-trading bans. When the effect of short selling on CSR is disentangled from the effect of margin trading on CSR performance, we find that the pilot firms respond to the exogenous shock of short-selling pressure by enhancing their CSR performance but not to the exogenous shock of margin trading. The results suggest that CSR activities can send a positive signal about future prospects to investors and other stakeholders including short sellers.