Abstract
Firms with workplace sexual harassment risk are reluctant to disclose such information. However, rank-and-file employees may reveal harassment information via anonymous job reviews. We investigate whether a measure of sexual harassment (SH score) constructed by performing textual analysis of online job reviews contains value-relevant information that affects firm performance. Our sample high-SH firms, or firms in the extreme quantiles of SH, exhibit significant productivity and performance reductions in terms of profitability, labor costs, and future stock performance. For example, firms with a top 2% SH score experience a decline of 4% in ROA, a decline of 11% in ROE, and an increase of 7% in labor costs during a five-year period around the year of high-SH identification, and earn a value-weighted risk-adjusted stock return of –13% in the one-year period after high-SH identification. These results indicate that sexual harassment has a highly detrimental effect on firm value, and employee voluntary reporting can be a valid disclosure mechanism when firms are disincentivized to reveal bad news. This research highlights the value-relevance of information held by rank-and-file employees, including information about possible corporate misconduct.
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