We examine whether financial reporting quality influences employee turnover and wages using employer-employee matched data in the U.S. We find that low financial reporting quality is associated with high employee turnover risk, so workers demand wage premiums to bear this risk. High corporate governance firms exhibit a weaker association between financial reporting quality and turnover rates, suggesting that corporate governance mitigates turnover risk related to low financial reporting quality. We further find that more educated and higher paid workers receive higher wage premiums associated with low financial reporting quality although turnover rates are similar across these different groups of workers, consistent with sophisticated workers identifying financial reporting quality. Using Sarbanes-Oxley mandated reports of internal control weaknesses as a research setting, we show that as a firm’s internal control system weakens, firms pay wage premiums to employees. Overall, these analyses indicate that low financial reporting quality firms compensate for higher turnover risk by paying higher wages to workers, which increases firms’ cost of labor.
Using detailed search data from half a million anonymous job seekers, we study the information content of earnings announcements for job seekers. In the spirit of Beaver (1968), we find evidence that job seekers initiate job-search activity in response to a prospective employer’s earnings announcements. Job seekers search more actively for employers with earnings growth and media coverage. We dive deeper into these results and observe (1) positive-news-driven job searches during earnings announcements are more strongly associated with subsequent job searches at the individual level, (2) job seekers apply more to higher-performing employers, (3) job seekers search forfinancial information during applications and interviews, and (4) financial information is predictive of future job prospects including job openings and career growth. We also conduct a survey experiment and find that job seekers are more willing to apply to firms when positive performance information is provided. Overall, our paper suggests earnings announcements—among other channels—guide job seekers’ search activities by providing them with information about employers’ job prospects.
I study the effects of mandated advance notice of employment loss on workers' labor market outcomes. Advance notice is a disclosure made by firms to workers, not investors. Despite widespread use of advance notice, there is little empirical evidence on its consequences. I find a four percentage point reduction in the incidence of joblessness and a four percentage point increase in labor force participation after mandated advance notice is in place. The benefits to workers accrue unevenly. Advance notice increases a woman's likelihood of re-employment by seven percentage points but has no impact on a man's likelihood of re-employment. The disclosure is most effective when extended to workers in industries with relatively low information production. The likelihood of compliance with mandated advance notice laws is increasing in a firm's internal information quality. Collectively, my results suggest a critical role of disclosure and internal information quality in observed unemployment rates and firms' workforce decisions.
This study provides some of the first evidence on gender-based differences in director retention at US public firms. While men hold the bulk of directorships, female directors are less likely than male directors to depart a board in a given year. However, when boards face adversity by way of financial restatements, the likelihood that female directors depart the board significantly increases compared to male directors at the same firm, especially when the board chair is male. The departing female directors receive fewer future directorships at other firms and are more likely to be replaced by male directors compared to their male counterparts who depart.
Corporations increasingly undertake and disclose policies that target social issues like poverty and racism. Theoretically, firms should not implement policies if they have no comparative advantage in executing them — such policies are called separable because their implementation can be easily separated from the regular business of the firm. We examine corporate disclosures to test whether investors distinguish between separable and non-separable activities when evaluating the implications of social policy disclosures. Consistent with theory, we find that both institutional and retail investors are less likely to exit holdings in firms that disclose non-separable policies. Moreover, we find a positive announcement return to non-separable policies but not separable policies. The results help resolve a puzzle regarding the lack of consistent announcement returns around social policy disclosures and suggest that regulators should distinguish between separable and non-separable activities when developing reporting standards.