Labor Unemployment Concern and Corporate Discretionary Disclosure |
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| Authors: | Yuan Ji Liang Tan |
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| Affiliation: | The authors are from The George Washington University. This paper benefits from helpful comments from and conversations with Yiwei Dou, Mei Feng, Angela Gore, Christopher Jones, Mozaffar Khan, Holly Yang, Yun Zhang, Jerry Zimmerman, Youli Zou, as well as conference participants at the Washington Area Research Symposium, 2015 AAA Mid‐Atlantic Region Annual Meeting, and 2015 AAA annual meeting. We thank George Washington University School of Business for financial support. All errors are ours. |
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| Abstract: | We investigate how firms strategically vary their disclosure policies in response to labor unemployment concern. Using changes in state unemployment insurance laws as exogenous variations of labor unemployment concern, we show that firms provide more bad news forecasts when unemployment concern is low. This relation is stronger when firms are financially constrained, when CEOs and CFOs have higher equity incentives, and when workers are likely to be affected more by unemployment. Our findings are not driven by earnings management reversal or underlying performance changes, and are robust to a battery of identification tests. Finally, we find a similar effect of unemployment concern on disclosure using the tone of 10‐K and 10‐Q filings as an alternative proxy for corporate disclosure. Overall, our findings suggest that labor unemployment concern is an important consideration for corporate discretionary disclosure. |
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| Keywords: | unemployment insurance wage differentials discretionary disclosure J31 J65 M41 M43 |
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