Many companies are now attempting to achieve triple bottom line performance on financial, environmental and societal metrics. Successful strategies for such performance, however, generally require new relationships among multiple players in multiple sectors across a company’s supply chain for products and talent. The Balanced Scorecard (BSC), originally developed to describe and implement a single organization’s strategy, needs to be adapted to reflect such multi-stakeholder strategies for triple bottom line performance. The Financial perspective is replaced by “Outcomes” to encompass financial, environmental, and metrics; Customer becomes “Stakeholders” to reflect the interests of the multiple participants in the ecosystem; and Learning & Growth becomes “Enablers” to include the new capabilities for collaboration and alignment. The paper motivates and illustrates the new framework with examples from innovative agribusiness ecosystems.
{"title":"Updating the Balanced Scorecard for Triple Bottom Line Strategies","authors":"R. Kaplan, D. McMillan","doi":"10.2139/ssrn.3682788","DOIUrl":"https://doi.org/10.2139/ssrn.3682788","url":null,"abstract":"Many companies are now attempting to achieve triple bottom line performance on financial, environmental and societal metrics. Successful strategies for such performance, however, generally require new relationships among multiple players in multiple sectors across a company’s supply chain for products and talent. The Balanced Scorecard (BSC), originally developed to describe and implement a single organization’s strategy, needs to be adapted to reflect such multi-stakeholder strategies for triple bottom line performance. The Financial perspective is replaced by “Outcomes” to encompass financial, environmental, and metrics; Customer becomes “Stakeholders” to reflect the interests of the multiple participants in the ecosystem; and Learning & Growth becomes “Enablers” to include the new capabilities for collaboration and alignment. The paper motivates and illustrates the new framework with examples from innovative agribusiness ecosystems.","PeriodicalId":357263,"journal":{"name":"Managerial Accounting eJournal","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131361660","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Yinghua Li, Yupeng Lin, Xiaoqiao Wang, Shijie Yang
This article investigates the role of financial analysts in product quality failures. Using a comprehensive sample of product recalls, we establish three main results. First, analyst coverage on average increases the frequency of product quality failures, particularly when managers are inclined to succumb to analysts’ pressure to pursue short-term profits. Second, analyst coverage inhibits quality-enhancing activities such as tightening control over input quality, establishing a quality-focused corporate culture, and increasing SG&A investments. Lastly, analysts can help reduce quality failures when they have supply-chain expertise. Taken together, our results uncover both detrimental and beneficial effects of analysts on product quality and safety.
{"title":"Duality of Analyst Coverage: Evidence from Product Recalls","authors":"Yinghua Li, Yupeng Lin, Xiaoqiao Wang, Shijie Yang","doi":"10.2139/ssrn.3831836","DOIUrl":"https://doi.org/10.2139/ssrn.3831836","url":null,"abstract":"This article investigates the role of financial analysts in product quality failures. Using a comprehensive sample of product recalls, we establish three main results. First, analyst coverage on average increases the frequency of product quality failures, particularly when managers are inclined to succumb to analysts’ pressure to pursue short-term profits. Second, analyst coverage inhibits quality-enhancing activities such as tightening control over input quality, establishing a quality-focused corporate culture, and increasing SG&A investments. Lastly, analysts can help reduce quality failures when they have supply-chain expertise. Taken together, our results uncover both detrimental and beneficial effects of analysts on product quality and safety.","PeriodicalId":357263,"journal":{"name":"Managerial Accounting eJournal","volume":"179 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128167803","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Jason A. Ashby, James A. Chyz, Linda A. Myers, Benjamin C. Whipple
We test whether firms that exclude the effects of amortization from their non-GAAP earnings allocate more of an acquisition’s purchase price to definite-lived intangible assets and less to tangible assets and goodwill. This strategy yields two benefits. First, it increases non-GAAP earnings by shifting the depreciation of tangible assets, which non-GAAP earnings includes, to amortization, which non-GAAP earnings excludes. Second, it decreases the likelihood of future goodwill impairments by reducing goodwill, but does not decrease non-GAAP earnings. Consistent with expectations, non-GAAP firms that exclude amortization allocate more of the purchase price to definite-lived intangible assets, primarily by shifting away from tangible assets. However, managers are more likely to shift allocations away from goodwill when impairments are likely to be costlier. These results indicate that non-GAAP reporting can influence management’s GAAP accounting choices, which runs counter to the traditional view that non-GAAP reporting is a response to features of GAAP earnings.
{"title":"The Impact of Non-Gaap Disclosure on the Purchase Price Allocation to Definite-Lived Intangible Assets in Mergers and Acquisitions","authors":"Jason A. Ashby, James A. Chyz, Linda A. Myers, Benjamin C. Whipple","doi":"10.2139/ssrn.3714234","DOIUrl":"https://doi.org/10.2139/ssrn.3714234","url":null,"abstract":"We test whether firms that exclude the effects of amortization from their non-GAAP earnings allocate more of an acquisition’s purchase price to definite-lived intangible assets and less to tangible assets and goodwill. This strategy yields two benefits. First, it increases non-GAAP earnings by shifting the depreciation of tangible assets, which non-GAAP earnings includes, to amortization, which non-GAAP earnings excludes. Second, it decreases the likelihood of future goodwill impairments by reducing goodwill, but does not decrease non-GAAP earnings. Consistent with expectations, non-GAAP firms that exclude amortization allocate more of the purchase price to definite-lived intangible assets, primarily by shifting away from tangible assets. However, managers are more likely to shift allocations away from goodwill when impairments are likely to be costlier. These results indicate that non-GAAP reporting can influence management’s GAAP accounting choices, which runs counter to the traditional view that non-GAAP reporting is a response to features of GAAP earnings.","PeriodicalId":357263,"journal":{"name":"Managerial Accounting eJournal","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114138481","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Accounting conservatism has been described as deriving from preferences for reporting errors to be in the direction of understatement rather than overstatement. We pair reporters with users (who rely on reporters’ information) in a multiperiod experiment. We posit that, under misaligned incentives that motivate aggressive reporting, users view aggressive reports as reflecting exploitative intent and expect that a norm prohibiting aggressive reporting applies. We predict that users use noisy reporting errors to gauge reporters’ norm compliance. We find that, ceteris paribus, users prefer not to be paired with reporters producing overstatement errors likely to reflect aggressive reporting relative to reporters producing understatement errors likely to reflect conservative reporting; alternatively, we find no such asymmetric preferences when the agents’ motives are aligned. The asymmetric preferences cannot be explained by agency theory predictions of payoff maximization or loss aversion. These moral preferences provide an initial condition from which conservatism can endogenously emerge. Data Availability: Data are available from the authors upon request. JEL Classifications: B52; D81; D82; M41.
{"title":"The Conservatism Principle and Asymmetric Preferences Over Reporting Errors","authors":"Jivas Chakravarthy, Timothy W. Shields","doi":"10.2139/ssrn.3635015","DOIUrl":"https://doi.org/10.2139/ssrn.3635015","url":null,"abstract":"\u0000 Accounting conservatism has been described as deriving from preferences for reporting errors to be in the direction of understatement rather than overstatement. We pair reporters with users (who rely on reporters’ information) in a multiperiod experiment. We posit that, under misaligned incentives that motivate aggressive reporting, users view aggressive reports as reflecting exploitative intent and expect that a norm prohibiting aggressive reporting applies. We predict that users use noisy reporting errors to gauge reporters’ norm compliance. We find that, ceteris paribus, users prefer not to be paired with reporters producing overstatement errors likely to reflect aggressive reporting relative to reporters producing understatement errors likely to reflect conservative reporting; alternatively, we find no such asymmetric preferences when the agents’ motives are aligned. The asymmetric preferences cannot be explained by agency theory predictions of payoff maximization or loss aversion. These moral preferences provide an initial condition from which conservatism can endogenously emerge.\u0000 Data Availability: Data are available from the authors upon request.\u0000 JEL Classifications: B52; D81; D82; M41.","PeriodicalId":357263,"journal":{"name":"Managerial Accounting eJournal","volume":"42 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-07-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117256689","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Market-based incentive pay is widely used in managerial compensation. In this study, we examine how Keynesian beauty contests and higher-order beliefs among investors affect the market-based performance measures used by a firm, as well as (1) the optimal compensation contract between the firm's owner and manager, and (2) the owner's choice of reporting quality. Compared to the benchmark without beauty contests, if the investors' decisions are strategic complements (substitutes), beauty contests in the financial market result in more (less) volatile performance measures used to evaluate the manager and decreased (increased) use of market-based compensation in equilibrium. Contingent on the type of the market, the owner can choose a reporting quality to maximize the firm value. Specifically, the reporting quality chosen by the owner is lower (higher) when the investments are strategic complements (substitutes). Further, since the investors have their source of private information, the owner never chooses the highest level of precision for the firm's accounting reports. However, the owner's choice of reporting quality is indeed socially optimal, as it also serves to minimize the deviation of the market's aggregate investment from the firm's fundamental value and thus reduce the chance of asset bubbles.
{"title":"Beauty Contests, Market-Based Compensation, and Reporting Quality","authors":"Hui Chen, Alexander Wenning","doi":"10.2139/ssrn.3652062","DOIUrl":"https://doi.org/10.2139/ssrn.3652062","url":null,"abstract":"Market-based incentive pay is widely used in managerial compensation. In this study, we examine how Keynesian beauty contests and higher-order beliefs among investors affect the market-based performance measures used by a firm, as well as (1) the optimal compensation contract between the firm's owner and manager, and (2) the owner's choice of reporting quality. Compared to the benchmark without beauty contests, if the investors' decisions are strategic complements (substitutes), beauty contests in the financial market result in more (less) volatile performance measures used to evaluate the manager and decreased (increased) use of market-based compensation in equilibrium. Contingent on the type of the market, the owner can choose a reporting quality to maximize the firm value. Specifically, the reporting quality chosen by the owner is lower (higher) when the investments are strategic complements (substitutes). Further, since the investors have their source of private information, the owner never chooses the highest level of precision for the firm's accounting reports. However, the owner's choice of reporting quality is indeed socially optimal, as it also serves to minimize the deviation of the market's aggregate investment from the firm's fundamental value and thus reduce the chance of asset bubbles.","PeriodicalId":357263,"journal":{"name":"Managerial Accounting eJournal","volume":"43 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-07-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115852179","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
John (Jianqiu) Bai, Matthew Serfling, Sarah Shaikh
We test the hypothesis that less transparency in financial disclosures is an undesirable firm attribute that increases the amount of information and unemployment risk that employees bear, resulting in a wage premium. Using establishment-level wage data from the U.S. Census Bureau, we document that firms with less transparent disclosures pay their employees more, especially when employees bear greater information acquisition costs, have more influence in the wage-setting process, and own more stock in their firm. Our results also hold to utilizing instrumental variables and two quasi-natural experiments arising from the passage of the Sarbanes-Oxley Act as shocks to the transparency of a firm’s financial reporting environment. Overall, our results suggest that accounting disclosure choices can generate externalities on an important group of stakeholders.
{"title":"Financial Disclosure Transparency and Employee Wages","authors":"John (Jianqiu) Bai, Matthew Serfling, Sarah Shaikh","doi":"10.2139/ssrn.3103237","DOIUrl":"https://doi.org/10.2139/ssrn.3103237","url":null,"abstract":"We test the hypothesis that less transparency in financial disclosures is an undesirable firm attribute that increases the amount of information and unemployment risk that employees bear, resulting in a wage premium. Using establishment-level wage data from the U.S. Census Bureau, we document that firms with less transparent disclosures pay their employees more, especially when employees bear greater information acquisition costs, have more influence in the wage-setting process, and own more stock in their firm. Our results also hold to utilizing instrumental variables and two quasi-natural experiments arising from the passage of the Sarbanes-Oxley Act as shocks to the transparency of a firm’s financial reporting environment. Overall, our results suggest that accounting disclosure choices can generate externalities on an important group of stakeholders.","PeriodicalId":357263,"journal":{"name":"Managerial Accounting eJournal","volume":"54 3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-07-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128954658","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Dereck Barr‐Pulliam, Jennifer R. Joe, Stephanie A. Mason, Kerri-Ann Sanderson
We analyze interviews with valuation specialists (specialists) employed by audit firms (in the Asia-Pacific region, Europe, and the U.S.) to understand how they work with auditors to evaluate the reasonableness of fair value measurements (FVMs) for financial instruments. The exponential growth of FVMs and complex estimates reported on financial statements requires that auditors increasingly rely on specialists to perform these evaluations. Informed by coo-petition theory from management and organizational science, we develop a framework to examine the tensions in the auditor-specialist alliance (the cooperative alliance) and how those tensions can impact FVM audit quality. Our framework considers five factors that contribute to tensions in the coopetitive alliance – organizational structure, economic independence and stressors, project goals, group identity, and knowledge sharing. We find that tensions around the economic independence of the specialist unit, auditor delays in engaging the specialist, and specialists’ perceptions that auditors do not respect their expertise and contribution to the FVM audit, lead specialists to distrust auditors and respond in ways that threaten audit quality. Further, we show that firm-level choices in the organizational structure and policy governing the use of specialists can impact the perceived quality of the specialist unit and the quality of audited FVMs. Our research complements recent studies examining the role of specialists in audit engagements with significant complex estimates and provides new insights to academics, regulators, and professionals.
{"title":"The Auditor-Valuation Specialist Coopetitive Alliance in the Fair Value Audit of Complex Financial Instruments","authors":"Dereck Barr‐Pulliam, Jennifer R. Joe, Stephanie A. Mason, Kerri-Ann Sanderson","doi":"10.2139/ssrn.3620440","DOIUrl":"https://doi.org/10.2139/ssrn.3620440","url":null,"abstract":"We analyze interviews with valuation specialists (specialists) employed by audit firms (in the Asia-Pacific region, Europe, and the U.S.) to understand how they work with auditors to evaluate the reasonableness of fair value measurements (FVMs) for financial instruments. The exponential growth of FVMs and complex estimates reported on financial statements requires that auditors increasingly rely on specialists to perform these evaluations. Informed by coo-petition theory from management and organizational science, we develop a framework to examine the tensions in the auditor-specialist alliance (the cooperative alliance) and how those tensions can impact FVM audit quality. Our framework considers five factors that contribute to tensions in the coopetitive alliance – organizational structure, economic independence and stressors, project goals, group identity, and knowledge sharing. We find that tensions around the economic independence of the specialist unit, auditor delays in engaging the specialist, and specialists’ perceptions that auditors do not respect their expertise and contribution to the FVM audit, lead specialists to distrust auditors and respond in ways that threaten audit quality. Further, we show that firm-level choices in the organizational structure and policy governing the use of specialists can impact the perceived quality of the specialist unit and the quality of audited FVMs. Our research complements recent studies examining the role of specialists in audit engagements with significant complex estimates and provides new insights to academics, regulators, and professionals.","PeriodicalId":357263,"journal":{"name":"Managerial Accounting eJournal","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-06-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126770995","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We exploit survey data from the Panel Study of Entrepreneurial Dynamics to investigate the role of accounting in the likelihood that a small business achieves and maintains positive operating cash flow (profitability). We examine several potential aspects of accounting including the entrepreneur’s: 1) accounting background, 2) intent to use various financial statements and projections, and 3) intent to use professional accountants. We find that entrepreneurs with an accounting background are more likely to achieve profitability. Perhaps more importantly, we document that the intended use of certain statements (e.g., income statements) and projections (e.g., break-even analysis) are associated with small business profitability. However, these statements and projections are only associated with future profitability for entrepreneurs with an accounting background, suggesting that the benefits of these statements primarily accrue to entrepreneurs who have an understanding of accounting. Consistent with this notion, we fail to find evidence that the use of professional accountants is associated with small business profitability. Combined, our evidence suggests various aspects of accounting are associated with profitability in the largely unregulated environment where small businesses operate.
{"title":"Accounting and Small Business Profitability","authors":"Eric R. Holzman, B. Miller, B. Williams, T. Yohn","doi":"10.2139/ssrn.3099220","DOIUrl":"https://doi.org/10.2139/ssrn.3099220","url":null,"abstract":"We exploit survey data from the Panel Study of Entrepreneurial Dynamics to investigate the role of accounting in the likelihood that a small business achieves and maintains positive operating cash flow (profitability). We examine several potential aspects of accounting including the entrepreneur’s: 1) accounting background, 2) intent to use various financial statements and projections, and 3) intent to use professional accountants. We find that entrepreneurs with an accounting background are more likely to achieve profitability. Perhaps more importantly, we document that the intended use of certain statements (e.g., income statements) and projections (e.g., break-even analysis) are associated with small business profitability. However, these statements and projections are only associated with future profitability for entrepreneurs with an accounting background, suggesting that the benefits of these statements primarily accrue to entrepreneurs who have an understanding of accounting. Consistent with this notion, we fail to find evidence that the use of professional accountants is associated with small business profitability. Combined, our evidence suggests various aspects of accounting are associated with profitability in the largely unregulated environment where small businesses operate.","PeriodicalId":357263,"journal":{"name":"Managerial Accounting eJournal","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121824706","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study uses an experiment to investigate managerial discretion in multi-task environments. Prior work provides evidence that managerial discretion often affects performance less positively or even negatively in these environments. We identify and analyze three potential drivers for these effects. First, for fairness reasons, employees may not prefer bonus allocations based on efficient effort only. Second, the mere presence of a manager (as opposed to an automatic bonus allocation) may lead employees to be concerned about how bonuses will be allocated. This consumes cognitive resources and may distort effort provision. Finally, managers could deliberately deviate from rewarding efficient effort because their assessment of employees’ fairness preferences for rewarding inefficient effort is biased. In line with our predictions, we find evidence in favor of the second and third driver but not the first. Our results contribute by enhancing our understanding of the effects of managerial discretion in multi-task environments.
{"title":"The Effects of Managerial Discretion in Multi-Task Environments: Experimental Evidence","authors":"M. Arnold, Kai A. Bauch","doi":"10.2139/ssrn.3612084","DOIUrl":"https://doi.org/10.2139/ssrn.3612084","url":null,"abstract":"This study uses an experiment to investigate managerial discretion in multi-task environments. Prior work provides evidence that managerial discretion often affects performance less positively or even negatively in these environments. We identify and analyze three potential drivers for these effects. First, for fairness reasons, employees may not prefer bonus allocations based on efficient effort only. Second, the mere presence of a manager (as opposed to an automatic bonus allocation) may lead employees to be concerned about how bonuses will be allocated. This consumes cognitive resources and may distort effort provision. Finally, managers could deliberately deviate from rewarding efficient effort because their assessment of employees’ fairness preferences for rewarding inefficient effort is biased. In line with our predictions, we find evidence in favor of the second and third driver but not the first. Our results contribute by enhancing our understanding of the effects of managerial discretion in multi-task environments.","PeriodicalId":357263,"journal":{"name":"Managerial Accounting eJournal","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"113964717","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A substantial body of prior research investigates how skills and attributes of upper management affect firm policies and performance, but the impact of workers outside of upper management has received little attention due to scarcity of data involving lower-level workers. We propose that utilization of routine labor represents an important source of variation in firm earnings persistence and predictability. Defining routine labor as occupations at greater risk for future automation, we find that firms hiring more routine labor generate more predictable and persistent earnings. Interestingly, earnings persistence is driven by accruals rather than cash flows, indicating that routine labor may not create smoother underlying economics. Routine labor generates the most predictable and persistent accruals when managers have higher ability and when firm efficiency is higher. Analysis within the manufacturing industry shows that routine labor especially impacts accrual persistence when firms build up inventory and therefore accrue a greater proportion of labor cost. In addition, external economic policy in the form of state minimum wage increases negatively impacts the link between routine labor and accrual persistence, presumably due to a less flexible and more costly labor supply for routine jobs.
{"title":"Does Routine Labor Generate Routine Earnings?","authors":"Yi Cao, Nicholas Seybert","doi":"10.2139/ssrn.3605303","DOIUrl":"https://doi.org/10.2139/ssrn.3605303","url":null,"abstract":"A substantial body of prior research investigates how skills and attributes of upper management affect firm policies and performance, but the impact of workers outside of upper management has received little attention due to scarcity of data involving lower-level workers. We propose that utilization of routine labor represents an important source of variation in firm earnings persistence and predictability. Defining routine labor as occupations at greater risk for future automation, we find that firms hiring more routine labor generate more predictable and persistent earnings. Interestingly, earnings persistence is driven by accruals rather than cash flows, indicating that routine labor may not create smoother underlying economics. Routine labor generates the most predictable and persistent accruals when managers have higher ability and when firm efficiency is higher. Analysis within the manufacturing industry shows that routine labor especially impacts accrual persistence when firms build up inventory and therefore accrue a greater proportion of labor cost. In addition, external economic policy in the form of state minimum wage increases negatively impacts the link between routine labor and accrual persistence, presumably due to a less flexible and more costly labor supply for routine jobs.","PeriodicalId":357263,"journal":{"name":"Managerial Accounting eJournal","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116697465","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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