Seminar (Dept. of Accounting)

Title：Reliance on Skilled Labor, Earnings Nonsynchronicity, and Information Environment

Speaker：Wang Wenfeng, Assistant Professor, The Southern University of Science and Technology

Time：10:00-11:30, May 29th, 2024 (Wednesday)

Venue：Room1007, Mingde Business Building

Language：Chinese & English

ABSTRACT:

This study examines the effect of a firm’s reliance on skilled labor on the extent to which firm-specific factors determine a firm’s earnings. We posit that firms have incentives to shape their skilled labor into firm-specific assets, which deters the departure of skilled employees and reduces the risk of expropriation by rivals. The firm-specific nature of skilled labor leads to a greater idiosyncratic component in earnings for firms that rely more on skilled labor. Consistent with this prediction, we find that earnings nonsynchroncity, which captures the degree to which firm-specific factors, rather than market or industry factors, determine a firm’s earnings, is higher for firms relying more heavily on skilled labor. This positive relation is more pronounced for firms engaged in more innovative activities and facing greater labor hiring costs. We further show that for such firms, stock prices incorporate less information about future earnings, managers obtain less information from stock prices, and executives earn greater profits from insider trading, suggesting that earnings nonsynchronicity arising from a firm’s reliance on skilled labor leads to higher information asymmetry between firm managers and outside investors.