The Ability of Employee Disclosures to Reveal Private Information Withheld by Managers

54 Pages Posted: 30 Jun 2019 Last revised: 4 Dec 2021

See all articles by Yun Fan

Yun Fan

University of Oklahoma - Steed School of Accounting

Yuan Ji

The Hong Kong Polytechnic University

Wayne B. Thomas

University of Oklahoma

Chong Wang

University of Kentucky

Date Written: November 22, 2021

Abstract

Managers may provide incomplete disclosure due to having various contracting, proprietary, agency, and other incentives leading them to withhold information. Employees do not face similar incentives and, through “wisdom of the crowd” displayed on social media, have the ability to aggregate their individual beliefs to provide informative business outlook. Thus, the extent to which employee disclosures provide information not revealed in management disclosures provides an indication of managers’ strategy in withholding private information. To test this idea, we use employee business outlook ratings on Glassdoor.com and examine the extent to which they reveal incremental information on loan spreads in private lending contracts. As expected, we find that employee disclosures reveal more private information as the quality of management disclosures decreases. We also show that this relation is more prominent when employees are expecting worsening performance, consistent with employee disclosures revealing more private bad news when managers have stronger incentives to withhold information. Our study demonstrates the potential of employee disclosures on social media to generate and disseminate private information being withheld by managers.

Keywords: Employee opinions, crowd widsom, voluntary disclosures, private information, business outlook

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

Suggested Citation

Fan, Yun and Ji, Yuan and Thomas, Wayne B. and Wang, Chong, The Relevance and Reliability of Employee Business Outlook Disclosures (July 22, 2019). Available at SSRN: https://ssrn.com/abstract=3411883 or http://dx.doi.org/10.2139/ssrn.3411883

Yun Fan (Contact Author)

University of Oklahoma - Steed School of Accounting ( email )

307 W Brooks
Norman, OK 73019
United States

Yuan Ji

The Hong Kong Polytechnic University ( email )

Hung Hom
Kowloon, Hong Kong
Hong Kong

Wayne B. Thomas

University of Oklahoma ( email )

Michael F. Price College of Business,
307 W Brooks, Rm 212B
Norman, OK 73019
United States
405-325-5789 (Phone)
405-325-7348 (Fax)

Chong Wang

University of Kentucky ( email )

Lexington, KY 40506
United States

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