|
|
|
| Accounting Comparability and Labor Income Share |
| JIANG Xuanyu, LIN Li
|
School of Accountancy, Central University of Finance and Economics/Research Center for Accounting and Economic Development of Guangdong-Hong Kong-Macao Greater Bay Area;
Operational Data Center, China Construction Bank |
|
|
|
Abstract In August 2021, the 10th meeting of the Central Financial and Economic Commission of the CPC Central Committee was held. The meeting focused on the promotion of common prosperity and stressed that the size of the middle-income group should be expanded and common prosperity should be promoted through high-quality development. The primary distribution plays a dominant role in determining personal income and the basic pattern of the social distribution of final income. Labor reward is the major source of individual income resulting from the primary distribution, as distribution according to work is a mainstay in China. Therefore, increasing the labor income share is a key mechanism to ensure that all people share the fruits of economic development, expand the size of the middle-income group, and realize common prosperity. In this context, exploring the determinants of the labor income share provides important theoretical contributions and has practical implications.
The literature points out that the efficiency of resource allocation in capital markets has an important effect on the labor income share. As an international business language, accounting information plays an important role in alleviating information asymmetry. The quality of accounting information directly determines the efficiency of resource allocation in capital markets. Comparability, which enables users to identify similarities and differences between two sets of economic phenomena, is recognized as the primary quality characteristic that enhances the usefulness of accounting information. Thus, our question is whether accounting comparability can affect firms' labor income share.
Using all Chinese firms listed on the Shanghai or Shenzhen stock exchanges from 2006 to 2019, this paper investigates the impact of accounting comparability on the labor income share. We find that greater accounting comparability leads to a higher labor income share in listed firms, which indicates that improving the quality of accounting information can help employees to share their enterprise's achievement. We provide evidence that reducing the cost of capital and improving research and development (R&D) intensity are two important channels through which accounting comparability increases the labor income share; accounting comparability only has a significant positive effect on non-managers' labor income share and does not affect managers' labor income share; the positive relation between accounting comparability and the labor income share is stronger for firms with greater financing constraints or lower information transparency, and for firms whose peer firms have better accounting earnings quality; and accounting comparability can improve firms' ability to create value by increasing their labor income share.
This paper contributes to the literature in the following ways. First, this study extends the literature on the determinants of the labor income share. The literature shows that biased technical change, industrial restructuring, industrial upgrading, labor bargaining power, foreign direct investment, financing constraints, firm size polarization, and corporate bond financing can significantly influence the labor income share, but ignores the impact of the capital market on the labor income share. Considering that accounting information quality is one of the key determinants of market efficiency, this paper investigates the relation between accounting comparability and firms' labor income share. It has important implications for understanding how the capital market affects firms' labor income share.
Second, we provide new evidence of the economic consequences of accounting comparability. Focusing on financing costs, corporate innovation, the efficiency of acquisition decisions, earnings management, stock price crash risk, tax avoidance, and executive incentive, the literature explores the impact of accounting comparability on corporate decisions. However, it ignores the potential role of accounting comparability in firms' resource allocation decisions. Therefore, from the perspective of the labor income share, this paper enriches the literature on the economic consequences of accounting comparability.
Finally, our study reveals two mechanisms through which accounting comparability enhances firms' labor income share. That is, accounting comparability can not only reduce the cost of equity and debt to mitigate firms' tendency to substitute capital for labor under financing constraints but also enhance firms' R&D investment intensity to increase their reliance on more skilled human capital, thus promoting their labor income share. It is useful to understand these mechanisms more comprehensively.
|
|
Received: 11 January 2021
Published: 09 May 2022
|
|
|
|
|
|
|
|
