Type: Research Essays
Sample donated: Dawn Hicks
Last updated: August 21, 2019
What?The European Commission (EC) has recently passed a legislation that from 2016onwards EU publicly traded companies do not have to publish financialstatements every quarter anymore, but annually as this was the case before 2004.The intentions behind this legislation is to enhance the long-term vision of EUcompanies by reducing the reporting frequency. Kraftet al.
(2017) reseach finds that an increase in reporting frequencysignificantly reduces investments in fixed assets for U.S. companies.
In thisresearch I want to research the effects of the reporting frequency of (Belgian)pubicly listed companies on investments in employees measured in labor costs tofind out if quaterly reporting reduces investments in personnel.Why?Kraft et al. (2017) reseached the investmenteffects of reporting frequency on U.S. firms. However, little reseach has beenconducted in an EU setting because of the recent abolishment of the mandatoryquarterly reporting frequence from 2016 onwards. Also Leuz and Wysocki (2016)call for more research outside the U.S.
setting. Leuz and Wysocki (2016) alsoencourage research to be conducted into the realeffects of disclosure mandates. Moreover, Dierynck et al. (2012) find thatBelgium private market labor costs increase to a smaller extend in relationwith activity increase, than labor costs decrease in relation with a decreasein activity. Based on these findings, it can be concluded managerial incentives drive costbehavior. The research gap my research intends to fill is enhanced understandingof the relation between labor costs and the reporting frequency for (Belgium)publicly listed companies and with this give hearing to the call of Leuz andWysocki (2016) for more research on realeffect of disclosure mandates. Problem statementDierynck et al.
(2012) find that companies cutinvestments in order to meet short-term quaterly objectives in an U.S. setting.However cutting investments to achieve quaterly objectives can also be true inan European setting. Since labor costs is for most companies the biggestexpense, it is possible companies tend to cut spending on labor costs in orderto meet these short-term objectives. In order to research this question, thefollowing problem statement is developped; Are (Belgium) public companies thatreport quarterly more likely to fire (hire) employees in response to short-termsales decreases (increases)?How?The Bel-First database of Bureau van Dijk can be used to find usefulinformation on labor costs for all the Belgian publicly listed firms.
Thisdatabase provides extensive information about the number of employees workingwithin a firm measured in FTE’s and average total hours per employee andprovides detailed information how the labor costs within firms are allocated.The method used is based on Dierynck et al.(2012) by determining which companies are expected to manage their firm-yearearnings by having a net income which is between 0 and 1 percent of thebeginning-of-year-total assets. Anticipated academic and practicalcontributionsThis research will contribute to the academic research by providing a betterinsight on the effects of reporting frequency in relation to investments inlabor costs. Furthermore, the anticipated practical contribution of thisresearch will provide insights for the European Commission whether theabolishment of quarterly reporting improves the long-term orientation for firmson the labor cost perspective.