K.U.Leuven - Departement toegepaste economische wetenschappen
DTEW Research Report 9928 pages:1-23
It has often been documented in the accounting literature that earnings are managed in the presence of contracts that implicitely or explicitely use accounting numbers. This paper examines the hypothesis that, in firms with strong trade unions, management manipulates reported earnings downward, s compared to firms without trade union activity. We use a direct output measure of trade union activity based on firm level information in a Belgian context. This country is characterised by important labour union bargaining over wages and employment. Using the Jones and modified Jones model to detect earnings management we find no evidence of lower reported earnings in Belgian firms with fierce trade union activity relative to firms without trade union activity.