Understanding Reputation Damage to Firm Culture: Insights from Employee Perceptions Post Financial Misconduct

53 Pages Posted: 18 Oct 2019 Last revised: 3 Oct 2023

See all articles by Siew Hong Teoh

Siew Hong Teoh

UCLA Anderson School of Management

Yuqing Zhou

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Christos Makridis

Stanford University; Institute for the Future (IFF), Department of Digital Innovation, School of Business, University of Nicosia; Arizona State University (ASU); Department of Veterans Affairs (VA)

Date Written: October 2023

Abstract

We investigate changes in employee perceptions of their firm and managers following the revelation of financial misconduct using employee ratings and comments on Glassdoor.com. We find that employee overall ratings of their company decline by 0.23 standard deviation, and ratings of culture, senior leadership, career opportunity, work-life balance, and employee recommendations also decline, ranging from 0.09 to 0.28 standard deviation. Ratings decline are more pronounced for employees with longer tenure, middle-aged, and full-time status, and for announcements receiving high media attention. Using a machine learning method to analyze employee comments, we find that employees provide fewer positive comments and more negative ones on the topic of firm culture. Employees also mention their intention to leave more frequently in their negative comments and general feedback comments. Collectively, the evidence suggests more negative employee perceptions about their firm following financial misconduct announcements, consistent with reputation damage to the firm culture. These negative sentiments suggest higher labor retention costs and lower productivity after a financial misconduct incident.

Keywords: Corporate Culture, Employee Satisfaction, Financial Misconduct, Reputation Damage

JEL Classification: G3, M4

Suggested Citation

Teoh, Siew Hong and Zhou, Yuqing and Makridis, Christos, Understanding Reputation Damage to Firm Culture: Insights from Employee Perceptions Post Financial Misconduct (October 2023). Available at SSRN: https://ssrn.com/abstract=3467787 or http://dx.doi.org/10.2139/ssrn.3467787

Siew Hong Teoh

UCLA Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

HOME PAGE: http://www.anderson.ucla.edu/faculty-and-research/accounting/faculty/teoh

Yuqing Zhou (Contact Author)

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

HOME PAGE: http://www.yuqingzhou.com/

Christos Makridis

Stanford University ( email )

Stanford, CA 94305
United States

Institute for the Future (IFF), Department of Digital Innovation, School of Business, University of Nicosia ( email )

Nicosia, 2417
Cyprus

Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

Department of Veterans Affairs (VA) ( email )

810 Vermont Avenue NW
Washington, DC 20420
United States

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