Employees’ perceptions and earnings benchmarks

Abstract

PurposeEmployees, as internal stakeholders, not only play significant roles in a company’s operations but are also important users of a company’s financial information. However, prior accounting research to date has not explored whether employees incorporate a firm’s ability to meet earnings benchmarks in forming and revising their perceptions of firms. This study aims to focus on whether a firm’s ability to meet relevant earnings benchmarks impacts employees’ perceptions.Design/methodology/approachThe authors use employees’ perception scores from the 100 Best Companies to Work for from 1998 to 2015. The authors conduct an empirical study to examine the impact of beating earnings benchmarks on the perceptions of employees by estimating regression analyses. The dependent variable is employee perceptions of the firm. The variables of interest are the earnings growth and the analyst forecast benchmarks. The authors control for earnings performance and other determinants of employees’ perceptions.FindingsThe authors find that beating the earnings benchmarks is relevant for employees but has different impacts on the employees’ perceptions of firms. Specifically, both level and change analyses suggest that a firm’s ability to beat the earnings growth benchmark affects employees’ perceptions. However, the authors find no associations between employees’ perceptions and the analyst forecast benchmarks.Research limitations/implicationsThe authors recognize the amount of variation among the two groups’ perceptions from the binary variable creates an inherent limitation that the authors examine the best firms in terms of employee perceptions compared to the second-best firms. Therefore, the authors create another measure, EMPLOYEE_PERCEPTION2, which equals one if the firm’s ranking is within the top quartile and zero if the firm’s ranking is within the bottom quartile. This new variable increases the variation of employees’ perceptions in the sample to address the inherent limitation by allowing us to compare the best firms to the worst firms in the sample.Originality/valueThe study highlights the importance of beating earnings benchmarks for employees as a broader group of stakeholders. The study contributes to accounting benchmarks literature by exploring a different group of earnings benchmarks users. The authors also contribute to psychology studies by providing empirical evidence on the previously untested, intuitive prediction that employees’ views depend on a firm’s ability to meet relevant earnings benchmarks.