Employer-Sponsored Health Insurance and Financial Reporting Quality

SYNOPSIS

In this study, we examine whether the quality of employer-sponsored health insurance is positively associated with financial reporting quality. We expect that higher quality health insurance helps to foster healthier employees and to attract and retain higher quality employees. These positive outcomes result in rank-and-file employees who are more capable of completing tasks, identifying errors, and providing more accurate reports to their superiors in a timely manner. Consistent with our predictions, we find that higher quality health insurance is associated with fewer financial restatements, fewer internal control weaknesses, and higher quality earnings. These findings are robust across several tests designed to mitigate endogeneity concerns. Our findings offer important practical implications for firms, investors, and regulators regarding the cost-benefit analysis of investments in high-quality healthcare insurance. Our study also adds to the academic literature examining the importance of rank-and-file employees to the financial reporting process.

Data Availability: All data are available from identified public sources.