The Relevance and Reliability of Employee Business Outlook Disclosures

Abstract

We examine disclosures of business outlook by rank-and-file employees on Glassdoor.com. Glassdoor.com is a social media platform where employees can share their views publicly and anonymously. We find that employee disclosures are more highly associated with loan spreads in private lending agreements as those disclosures become more relevant to lenders’ decisions (i.e., when the borrowing firm has higher information opacity, has more dispersed operations, or is more financially constrained) and as those disclosures become more reliable (i.e., as the number of employee ratings increases, when those ratings are based proportionately more on current employees, and when firms have a larger labor force.). The results are consistent with employee disclosures providing useful inside information that otherwise may not have been disclosed publicly by upper-level managers. The rapid growth in information disclosed on social media platforms provides researchers an important and interesting setting to explore how alternative sources of information may be generated and disseminated by various stakeholders.

Keywords: Employee opinions, voluntary disclosures, wisdom of the crowd, debt contracting, loan pricing, private loans

JEL Classification: D82, D83, G10, G21, M40, M41