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Does U.S. immigration policy facilitate financial misconduct?
Preprint   Open access

Does U.S. immigration policy facilitate financial misconduct?

Ruiting Dai, Xuanjun Dong, Nemit Shroff and Qin Tan
Social Science Research Network : SSRN
13 Feb 2024
DOI: https://doi.org/10.2139/ssrn.4706102
url
https://doi.org/10.2139/ssrn.4706102View
Preprint (Author's original)Open Access (License Unspecified),  Open

Abstract

accounting restatement financial reporting quality immigration policy H1-B foreign labor financial misconduct
We examine the impact of U.S. immigration policy, specifically the H-1B visa program, on the likelihood of financial misconduct in companies. We argue that employers have leverage over employees on an H-1B visa because such visa holders must maintain H-1B-eligible employment in order to legally reside in the U.S. We posit that companies relying on H-1B visas to hire workers in accounting roles have an increased ability to misreport their financial statements due to the greater costs H-1B employees face if they are unexpectedly fired for not following the demands of their bosses or for blowing the whistle on misconduct. Using the sharp reduction in the H-1B visa cap in 2004 as a shock to such employment, we find that companies that relied on this visa program for accounting roles pre-shock experience a 2.3 percentage point decline in accounting irregularities post-shock. Cross-sectional tests show that the reduction in irregularities is greater in companies where employees on an H-1B visa have (1) greater influence on financial reporting or (2) fewer outside job opportunities. In addition, the relation between H-1B visa use and irregularities is stronger in companies with greater ownership by short-horizon investors that are more likely to pressure managers to meet near-term earnings targets. We corroborate our findings using the outcome of H-1B visa lotteries as shocks to such employment.

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