Examining the Relationship between Employee Effort and Earnings Management: Evidence from non-Financial Tunisian Companies

Abstract

This paper examines the relationship between employee effort and earnings management. Data on working hours and discretionary cumulations of 29 non-financial companies listed in Tunisia are used. With an increased activity of employees, we find less profit management in Tunisian companies. This result evolves more critical when incomes are more predictable and persist after controlling for delayed endogeneity. However, we also find that increasing employee effort increases the likelihood of positive gains being realized for non-financial businesses. Our findings have important implications for investors and regulators looking to restrict earnings management.