دانلود رایگان مقاله انگلیسی محافظه کاری مشروط و کارایی سرمایه گذاری کار - الزویر 2018

ABSTRACT

Prior literature documents that asymmetric timely recognition of losses versus gains (also known as conditional conservatism) can induce management to make more efficient investment decisions by mitigating information asymmetry between management and investors and providing early signals about the profitability of projects that are undertaken. In this paper, we investigate the impact of conservatism on an important investment decision that has been overlooked, namely, investment in labor. We find that conservatism is negatively associated with labor investment inefficiency; more specifically, conservatism reduces inefficient investment practices on the labor market, including over-hiring, under-firing, under-hiring, and over-firing. Our results hold after controlling for managerial ability, corporate governance, and other investments.

6. Conclusion

Prior literature in accounting posits that conservatism can mitigate investment inefficiency in capital markets. We extend this line of research by examining the effect of conservatism on investment efficiency in the labor market, an important area that has been overlooked. We find that conservatism mitigates investment inefficiency, both over-investment and under-investment, in labor. This negative association between conservatism and investment inefficiency in labor holds in all possible scenarios of inefficient investment, including over-hiring, under-firing, under-hiring, and over-firing in the labor market, and it also holds after controlling for managerial ability, corporate governance, and other investments. Moreover, the results are both statistically and economically significant. Overall, our results contribute to a growing body of evidence suggesting that conservative financial reporting improves firms’ investment decisions in general, and in particular, labor investment decisions.

Our study has several limitations. First, while we find that conservatism is associated with improved labor investment efficiency, we note that our study is not designed to identify the underlying mechanism through which conservatism affects labor investment. Second, although we try to address the endogeneity in conservatism using SAB No. 101 as an exogenous shock to increase accounting conservatism, the association between conservatism and labor investment decisions may be driven by some underlying firm characteristics that we do not adequately control for in our empirical specifications. Third, although we use various measures of conditional conservatism and alternative tests to triangulate our results, our inferences ultimately depend on how well the conservatism proxies capture the underlying construct of conservative reporting. Fourth, our results are specific to the United States and may not carry over to other countries with different labor markets.