The Role of Employee Reviews in Fraud Detection

Abstract

This paper examines whether employees' public disclosure is useful for predicting accounting fraud. Using data from Glassdoor, we find that employees' ratings of senior management and the overall company, as well as their textual assessments of the quality of their employers' social and governance practices and the corporate culture, can predict accounting fraud. The fraud predictability of employee reviews we document is incremental to F-score and signals from capital market participants, and begins as early as two years before a fraud revelation. Additional analyses show that employee reviews are more useful for predicting fraud when they aggregate opinions from a more diverse and better educated labor force, and when employees have access to higher-quality internal information and enjoy stronger protection from employers. In sum, our evidence suggests that employee reviews are an important source of fraud-related information for the public and thus have practical implications for investors and regulators. Data Availability: Data are available from the public sources cited in the study.

Keywords: fraud prediction, employee review, Glassdoor, F-score