Do Short-Term Incentives Affect Long-Term Productivity?
March 2020
Working Paper Number:
CES-20-10
Abstract
Previous research shows that stock repurchases that are caused by earnings management lead to reductions in firm-level investment and employment. It is natural to expect firms to cut less productive investment and employment first, which could lead to a positive effect on firm-level productivity. However, using Census data, we find that firms make cuts across the board irrespective of plant productivity. This pattern seems to be associated with frictions in the labor market. Specifically, we find evidence that unionization of the labor force may prevent firms from doing efficient downsizing, forcing them to engage in easy or expedient downsizing instead. As a result of this inefficient downsizing, EPS-driven repurchases lead to a reduction in long-term productivity.
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:
investment,
payroll,
sale,
quarterly,
earnings,
investor,
labor productivity,
labor,
accounting,
employment growth,
productivity size,
capital productivity,
investment productivity,
incentive,
employment production,
firms productivity,
invest,
union,
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identified to contain references to specific institutions, datasets, and other organizations.
:
Census of Manufactures,
Annual Survey of Manufactures,
Total Factor Productivity,
National Bureau of Economic Research,
Chicago Census Research Data Center,
Census of Manufacturing Firms,
Boston College,
North American Industry Classification System,
Special Sworn Status
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