How Does Soft Information Affect External Firm Financing? Evidence from Online Employee Ratings

72 Pages Posted: 12 Jan 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 the effects of equity market investors having access to soft information, such as online employee ratings of firms, on their external financing and investment policies. We develop testable hypotheses using a theoretical framework in which the insiders of a firm have private information about its intrinsic value, but where outsiders have access to soft information signals imperfectly correlated with this intrinsic firm value. We test these hypotheses using a large sample of around 1.1 million employee ratings from the Glassdoor website covering a sample of 2842 public firms during 2008 to 2017. 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 seasoned equity offerings (SEOs); and better long-run post-SEO operating performance. Our identification strategy makes 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 Soft Information Affect External Firm Financing? Evidence from Online Employee Ratings (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/

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
54
Abstract Views
335
rank
389,025
PlumX Metrics