How Much Does Workplace Sexual Harassment Hurt Firm Value?

Abstract

It is widely recognized that workplace sexual harassment has significant negative psychological and personal consequences, and employees facing high harassment risk experience productivity losses. We investigate to what extent sexual harassment hurts firm value. In contrast to recent studies that focus on short-run market reactions to announcements of harassment scandals, we measure the longer-term effect on firm value starting from the date when harassment risk affects employee morale. We identify firm harassment risk by analyzing employee job reviews and estimate the sexual harassment score (SH) through textual analysis of online job reviews. Our sample of high-SH firms, or firms with unusually high SH scores, exhibits significant reductions in future stock performance and profitability. For example, firms with a top 2% SH score earn a value-weighted risk-adjusted stock return of –17% in the one-year period after high-SH classification. Furthermore, these firms experience a decline in operating profitability and an increase in labor costs during a five-year period around high-SH classification. Our evidence suggests that sexual harassment can cause greater damages to firm value than previously documented.

Keywords: disclosure, sexual harassment, employee reviews, firm value, environmental, social, and governance (ESG)

JEL Classification: J16, G34, G14