Institutional Ownership and Labor-Related Misconduct: Evidence from U.S. Federal Violations
56 Pages Posted: 27 Sep 2019 Last revised: 27 Mar 2020
Date Written: March 23, 2020
Using a novel, comprehensive dataset on penalties assessed by U.S. federal agencies for labor-related misconduct, we examine the effect of institutional investors on firms’ employee practices. We find that institutional ownership is negatively associated with the likelihood of firms receiving federal penalties for violating labor laws. Additional analyses suggest that institutions are mainly motivated by financial rather than social reasons. Although the direct penalty amounts are small, violating firms face a higher likelihood of employee lawsuits in subsequent years and suffer from reputational damage. Such firms also experience negative stock returns.
Keywords: Institutional Ownership, Employees, Labor Practices, Violation, Misconduct
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