Labor Protection And Company Earnings Management

Understanding the forces that shape financial reporting outcomes is an important goal in accounting research.In the modern economy which was oriented by tertiary industry and technology,Human capital is the most important assets.The labor protection laws and regulations are improved constantly.Enterprises face labor cost pressure.Therefore,it is very significant to study the effects of labor protection to the company’s financial policy choices.In this paper,we choose adoption of the Lowest Salary standard adjust as the quasi-natural experiment.Based on the analysis of the bandwagon effect,the company internal salary system and related policies,we use the methods of difference-in-differences and Propensity Score Matching to study the impact of labor protection and rank and file employees’ perception on the company’s earnings management.The results show that when the minimum wage increase,the firms tend to do upward earnings management in order to maximize employees,perception about the value of implicit contracts between firms and rank and file employees,then the labor cost can be eased and reduced.On average,the minimum wage increase by one standard deviation(0.1367),firm earnings management will increase by 15.57%.Then,this paper validated the mechanism that the Lowest Salary standard affect firm earnings management from the perspective of labor intensity and wage level.The results show that impact is more significant in labor-intensive enterprises and low-wage industries.Finally,we examine the economic consequences of the Lowest Salary standard adjustment.The results show that the Lowest Salary standard increase promote the development of firms increasing firm’s ROA significantly.Overall,our findings imply that the Lowest Salary standard increase can have a significant effect on corporate financial policies.This paper contributes to study about the influence of labor protection and rank and file employees’ perception on the corporate financial polices.