How does Online Employee Ratings Affect External Firm Financing? Evidence from Glassdoor

81 Pages Posted: 12 Jan 2020 Last revised: 15 Sep 2020

See all articles by Thomas J. Chemmanur

Thomas J. Chemmanur

Boston College - Carroll School of Management

Harshit Rajaiya

Boston College, Carroll School of Management, Department of Finance

Jinfei Sheng

University of California, Irvine - Paul Merage School of Business

Date Written: December 16, 2019

Abstract

We analyze how employees’ online ratings of firms’ affect their corporate financing and investment policies. We hypothesize that, while employees are unlikely to have access to inside information, their ratings, being driven by their day-to-day interactions with their employers, are likely to be correlated with long-run firm value and performance. This means that employee ratings are likely to affect the external financing behavior of firms in a setting where potential equity investors have access to online employee ratings (and firm insiders are aware of such access). We develop and test hypotheses based on the above assumptions using a large sample of around 1.1 million employee ratings from the Glassdoor website covering a sample of 2842 public firms. We find that firms with higher average online employee rating realizations are associated with algebraically greater abnormal stock returns upon an equity issue announcement; a greater propensity to have positive abnormal stock returns upon such an announcement; a greater propensity to issue equity rather than debt to raise external financing; higher annual investment expenditures; greater participation by institutional investors in their equity offerings (SEOs); and better long-run post-SEO operating performance. We demonstrate causality by making use of a difference-in-differences (DID) methodology relying on the staggered implementation of laws protecting the First Amendment Rights of citizens (anti-SLAPP laws) across US states.

Keywords: Seasoned Equity Offerings (SEOs); Soft Information; Online Employee Ratings; Information Environment; Big Data

JEL Classification: G32; G23; G24

Suggested Citation

Chemmanur, Thomas J. and Rajaiya, Harshit and Sheng, Jinfei, How does Online Employee Ratings Affect External Firm Financing? Evidence from Glassdoor (December 16, 2019). Available at SSRN: https://ssrn.com/abstract=3507695 or http://dx.doi.org/10.2139/ssrn.3507695

Thomas J. Chemmanur (Contact Author)

Boston College - Carroll School of Management ( email )

Finance Department, 436 Fulton Hall
Carroll School of Management, Boston College
Chestnut Hill, MA 02467-3808
United States
617-552-3980 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://https://www2.bc.edu/thomas-chemmanur/

Harshit Rajaiya

Boston College, Carroll School of Management, Department of Finance ( email )

154 A, Fulton Hall, Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Jinfei Sheng

University of California, Irvine - Paul Merage School of Business ( email )

4291 Pereira Dr
Irvine, CA 92697
United States

HOME PAGE: http://sites.google.com/site/shengjinfei/

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