Companies that want to make their workplace safer can try to implement a stricter accounting system.
A new study finds a link between a company’s work accidents and information quality in its financial statements.
Danye Wang, assistant professor of accounting at the Tippie College of Business at the University of Iowa, was part of a research team that looked at data from 1,300 companies and found that those with fewer work-related accidents were also less likely to need to review or review their earnings. have more. accurate profit forecasts.
According to Wang, the reason for this link is that rigorous accounting can quantify the benefits of workplace safety and show managers the full costs of those injuries. That includes legal, reputation and regulatory costs beyond medical costs and productivity disruption.
She said the process of preparing financial statements also leads company management teams to gather more information that helps them better understand the importance of factors such as workplace safety.
A lower quality of information is normally not so revealing.
Careful accounting can quantify the benefits of workplace safety and reveal the full cost of injuries.
“High information quality can increase managers’ and stakeholders’ awareness of workplace safety and motivate them to improve safety,” she said. “It can show where the problems are, so they can be solved, and investments in safety-related problems yield a positive return.”
Wang’s research team used several metrics to determine information quality, including profit forecast accuracy and error-driven reformulations. They compared that to an Occupational Safety and Health Administration (OSHA) database that measured injuries at U.S. companies between 2002 and 2011.
Wang said there are exceptions. For example, some companies, such as Alcoa, have developed their own workplace injury reduction tools separate from their accounting systems.
Companies where more decision-making power is invested in off-premises locations also see less of a correlation, as local offices tend to make decisions based on local, not company-wide, information.
The study also found that the effects were further amplified in companies where employees are unionized or otherwise have greater bargaining power, as employees are motivated by workplace safety.
The article, “Information Quality and Workplace Safety”, was written in collaboration with Ole-Kristian Hope of the University of Toronto and BI Norwegian Business School, Heng Yue of Singapore Management University and Jianyu Zhao of Central University of Finance and Economics.
The research is published in the Journal of Management Accounting Research.
subjects
Business insurance for commercial lines
