Employee social media coverage and expected stock price crash risk: evidence from staggered initiation of employee reviews on Glassdoor

Motivated by employees as an important information source and a governance mechanism, we investigate how employee coverage of a firm on a social media platform (i.e. Glassdoor) affects investors’ perceptions of stock price crash risk. Exploiting the staggered initiation of employee reviews on Glassdoor and adopting a stacked difference-in-differences research design with a propensity score matched sample (PSM-DID), we document an alleviating effect of employee social media coverage on expected crash risk. We confirm both information content and employee empowerment as channels for the effect. Regarding the information content channel, firms with employee disclosure that reveals more negative information or a higher level of management misconduct risk experience a more pronounced effect. For the employee empowerment channel, we document a decline in managerial disclosure opportunism (i.e. earnings management, accounting conservatism, and bad news hoarding) as well as risk-taking (i.e. overinvestment and aggressive tax-avoidance) associated with Glassdoor coverage. Furthermore, the effect is greater for firms with a poorer prior information environment, more informative employee reviews, higher CEO ex ante risk-taking incentives, or weaker external monitoring. Overall, our findings highlight the role of employee social media coverage in shaping managerial behaviours and investor perceptions.