Firm Reputation Following Financial Misconduct: Evidence from Employee Ratings

Abstract

Using data from Glassdoor between 2008 and 2016, we study the effect of the public announcement of financial misconduct on employees' perceptions of firms, managers, and their salaries. We find a 0.32 standard deviation decline in overall company ratings following the public announcement of misconduct. The effects are stronger among employees who have weaker bargaining power on the job market, such as non-college workers and shorter tenure workers. Moreover, the salaries of certain employee groups slightly increase during the period of misconduct and decrease for a few years after the misconduct announcement. We also find that employee ratings are helpful for predicting misconduct.

Keywords: Financial Misconduct, Firm Reputation, Employee Ratings

JEL Classification: G3, M4