The ability of employee disclosures to reveal private information

Author:

Fan Yun1,Fu Jiajia2,Ji Yuan3,Thomas Wayne B.1

Affiliation:

1. John T. Steed School of Accounting, Michael F. Price College of Business University of Oklahoma Norman Oklahoma USA

2. School of Accountancy, Robert C. Vackar College of Business and Entrepreneurship University of Texas at Rio Grande Valley Edinburg Texas USA

3. Department of Accounting, College of Business University of Texas at Arlington Arlington Texas USA

Abstract

AbstractManagers may provide incomplete disclosure for various reasons (e.g., high processing costs, operating uncertainty, proprietary concerns, agency conflicts, etc.). In contrast, rank‐and‐file employees face fewer of these limitations. Through “wisdom of the crowd” displayed on social media, employees can aggregate their individual private beliefs to provide an informative business outlook. Using employee data from Glassdoor.com, we find that employee business outlook disclosures reveal more information in loan spreads of private lending contracts when firms have more opaque information environments. Furthermore, we observe that employee disclosures help to reveal more private information when the business outlook is worsening and as employees’ collective knowledge increases. This relation is more prominent when employees are expecting worsening performance, consistent with employee disclosures revealing more private bad news. Our study demonstrates the conditions under which employee disclosures on social media are more likely to disseminate private information.

Publisher

Wiley

Subject

Finance,Business, Management and Accounting (miscellaneous),Accounting

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