Institutional ownership and workplace misconduct: Evidence from federal labor law violations

50 Pages Posted: 27 Sep 2019 Last revised: 12 Feb 2021

See all articles by Xi Li

Xi Li

London School of Economics

Aneesh Raghunandan

London School of Economics

Date Written: January 16, 2021

Abstract

We examine shareholder influence over workplace misconduct. We find that institutional ownership is negatively associated with portfolio firms’ likelihood to violate federal labor laws. Additional tests using an instrumental variables approach suggests a causal relation. We document evidence consistent with institutional investors’ aversion to poor employment practices being financially motivated: labor law violations are associated with negative stock returns and a higher likelihood of lost or settled employee lawsuits in subsequent years. Moreover, the effect of institutional ownership on workplace misconduct is stronger in portfolio firms with greater reputational concerns. We find results consistent with shareholder monitoring and voice as channels of investor influence. Institutional investors improve portfolio firms’ employment practices via decreased employee workload and increased workforce investments.

Keywords: Institutional Ownership, Employees, Employment Practices, Violation, Misconduct

Suggested Citation

Li, Xi and Raghunandan, Aneesh, Institutional ownership and workplace misconduct: Evidence from federal labor law violations (January 16, 2021). Available at SSRN: https://ssrn.com/abstract=3460126 or http://dx.doi.org/10.2139/ssrn.3460126

Xi Li

London School of Economics ( email )

Department of Accounting
Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://www.lse.ac.uk/accounting/people/xi-li

Aneesh Raghunandan (Contact Author)

London School of Economics ( email )

United Kingdom

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