Do Labor Markets Discipline? Financial Restatements and Accountants

• In Event: Auditors' human capital and labor markets

Abstract

This study examines the impact of financial restatements on accountants’ labor market outcomes. I construct a comprehensive sample of accountants and HR professionals in firms with a financial restatement between 2004 and 2014 from LinkedIn. Using employment histories disclosed in public LinkedIn profiles, I identify two labor market outcomes: employee turnovers around financial restatements and an employee’s promotion prospect in a new job. Using a difference-in-differences specification, I find that accountants, relative to HR professionals, experience a higher turnover and a worse promotion prospect after restatements are announced. The increase in turnover is more pronounced for senior internal auditors and only in firms with more severe restatements. Second, I find that only senior internal auditors, relative to senior corporate accountants and senior HR professionals, experience a higher turnover but not a worse promotion prospect before restatements are announced. Last, I find that internal auditors leave after restatements are announced experience a worse promotion prospect than those leave before restatements are announced.

Author

• Michael Shen, Michigan State University