The European Commission (EC) has recently passed a legislation that from 2016
onwards EU publicly traded companies do not have to publish financial
statements 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 EU
companies by reducing the reporting frequency. Kraft
et al. (2017) reseach finds that an increase in reporting frequency
significantly reduces investments in fixed assets for U.S. companies. In this
research I want to research the effects of the reporting frequency of (Belgian)
pubicly listed companies on investments in employees measured in labor costs to
find out if quaterly reporting reduces investments in personnel.
Kraft et al. (2017) reseached the investment
effects of reporting frequency on U.S. firms. However, little reseach has been
conducted in an EU setting because of the recent abolishment of the mandatory
quarterly reporting frequence from 2016 onwards. Also Leuz and Wysocki (2016)
call for more research outside the U.S. setting. Leuz and Wysocki (2016) also
encourage research to be conducted into the real
effects of disclosure mandates. Moreover, Dierynck et al. (2012) find that
Belgium private market labor costs increase to a smaller extend in relation
with activity increase, than labor costs decrease in relation with a decrease
Based on these findings, it can be concluded managerial incentives drive cost
behavior. The research gap my research intends to fill is enhanced understanding
of the relation between labor costs and the reporting frequency for (Belgium)
publicly listed companies and with this give hearing to the call of Leuz and
Wysocki (2016) for more research on real
effect of disclosure mandates.
Dierynck et al. (2012) find that companies cut
investments in order to meet short-term quaterly objectives in an U.S. setting.
However cutting investments to achieve quaterly objectives can also be true in
an European setting. Since labor costs is for most companies the biggest
expense, it is possible companies tend to cut spending on labor costs in order
to meet these short-term objectives. In order to research this question, the
following problem statement is developped;
Are (Belgium) public companies that
report quarterly more likely to fire (hire) employees in response to short-term
sales decreases (increases)?
The Bel-First database of Bureau van Dijk can be used to find useful
information on labor costs for all the Belgian publicly listed firms. This
database provides extensive information about the number of employees working
within a firm measured in FTE’s and average total hours per employee and
provides 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-year
earnings by having a net income which is between 0 and 1 percent of the
Anticipated academic and practical
This research will contribute to the academic research by providing a better
insight on the effects of reporting frequency in relation to investments in
labor costs. Furthermore, the anticipated practical contribution of this
research will provide insights for the European Commission whether the
abolishment of quarterly reporting improves the long-term orientation for firms
on the labor cost perspective.