From morale to metrics: The influence of workforce engagement on financial reporting choices

This study investigates the relationship between employee engagement and discretionary accruals, offering a stakeholder-oriented perspective on earnings management. Using panel data from U.S. public firms (2017–2024) and the Drucker Institute’s employee engagement and development score, the study estimates regression models to assess whether engagement influences revenue reporting discretion. Results show that higher employee engagement is associated with lower discretionary accruals, indicating that engagement functions as a governance mechanism that promotes transparency rather than opportunistic reporting. The effect is stronger in consumer-facing industries, where reputational visibility and stakeholder scrutiny are greatest, but it is not moderated by firm growth. These findings extend stakeholder theory by demonstrating that non-financial performance indicators can shape financial reporting behavior and highlight the contextual nature of reputational pressures. Practical implications include the need for regulators, auditors, and investors to consider engagement metrics as indicators of reporting quality. Future research should examine interactions with other stakeholder attributes and institutional contexts