Accepted by Steven Salterio. I would like to thank my advisor Jacob Thomas for his insight and support. Additionally, I would like to thank Rick Antle, Gus De Franco, Yiwei Dou, Merle Ederhof, Ole-Kristian Hope, Yu Hou, Alastair Lawrence, Sarah McVay, Miguel Minutti-Meza, Brian Mittendorf, Steven Salterio (the Editor (in-Chief)), Shyam Sunder, Dan Thornton, Michael Welker, Frank Zhang, Jerold Zimmerman, and seminar participants at the 2008 American Accounting Association Annual Meeting, Georgetown University, the I.H. Asper School of Business, London Business School, McGill University, Queen’s University, the University of California at Irvine, the University of Toronto, and Yale University for their excellent feedback. I also thank I/B/E/S Inc. for the analyst data, available through the Institutional Brokers Estimate System. The data has been provided as part of their broad academic program to encourage earnings expectations research. I gratefully acknowledge the financial support of the Rotman School of Management, University of Toronto.
Labor Unions and Management’s Incentive to Signal a Negative Outlook*
Article first published online: 14 AUG 2012
© 2012 The Canadian Academic Accounting Association
Contemporary Accounting Research
Volume 30, Issue 1, pages 14–41, Spring 2013 (March)
How to Cite
Bova, F. (2013), Labor Unions and Management’s Incentive to Signal a Negative Outlook. Contemporary Accounting Research, 30: 14–41. doi: 10.1111/j.1911-3846.2012.01160.x
- Issue published online: 18 MAR 2013
- Article first published online: 14 AUG 2012
- Accepted manuscript online: 3 FEB 2012 12:19PM EST
Evidence suggests that the negotiated wage for a unionized employee group is an increasing function of the firm’s prior profitability. As a result, managers may have an incentive to strategically signal a negative outlook to their unionized workers in order to improve the firm’s bargaining position. I assess the strategy of missing mean consensus analysts’ earnings estimates as a way for managers to signal a negative outlook to their unionized employees. I find that unionized firms are more likely to miss estimates than their nonunionized counterparts. Additionally, this propensity to miss estimates is increasing in both the firm’s percentage of unionized employees and multiunionism, but is unaffected by the timing of the signal relative to contract renewal. Finally, the increased propensity to miss estimates appears to be driven by both differences in expectations management and earnings management across the two groups. Specifically, managers of unionized firms take less action than their nonunionized counterparts to guide forecasts downward when estimates are too high, and they take more action to deflate earnings when expectations are too low. Taken together, the findings suggest that managers do seek to project a negative outlook to their unions, and that this tendency is increasing in the union’s negotiation strength.