Labor Unionization and Real Earnings Management : Evidence from Labor Elections

By exploiting the local randomness in close-call labor elections, this paper finds a positive impact of labor unionization on firms’ real earnings management, suggesting the pressure effect of increased labor power. In a local regression discontinuity (RD) analysis, firms that narrowly pass the 50% threshold show a higher increase in real earnings management than those that narrowly fail. This effect is attenuated for firms in right-to-work states and is strengthened when managers face higher pressure on earnings. Evidence from a global parametric RD analysis and a multivariate OLS test using industry-level and firm-level unionization information confirms the external validity of results in local RD analysis. Overall, this paper sheds new light on the economic consequence of labor unionization in terms of employers’ accounting decisions