Disclosure Strategies to Win The War for Talent: Evidence from LinkedIn
Project: Research
Description
Modern firms are competing to attract and retain qualified talent, which is cited as the most important concern of chief financial officers (Duke University 2021). As skilled labor is crucial for firm success, and high employee turnover is costly, firms are likely touse financial reporting and voluntary disclosure strategically to prevent employee turnover. However, we know little about how workers respond to their employers’ financial disclosures. In this proposal, I plan to explore novel data based on the individual online résumés of public company employees in order to investigate the effects of financial reporting and disclosure policies on labor market decisions.As a limited number of firms disclose information about their labor costs in their traditional accounting disclosures, I take a different approach by using micro-level data on individual employment and characteristics obtained from employees’ online profiles.The rise of online job platforms, such as LinkedIn, allows me to explore a broad population with detailed employment histories, education, demographic backgrounds, skill sets, and specialties.I predict that, first, firms meeting or beating earnings benchmarks (MBE) and engaging in upward earnings management can increase employee retention by maximizing employees’ expectations about their firms’ future performance. Second, firms providingvoluntary earnings forecasts, particularly good news forecasts, can retain their workforce better. Also, firms withholding bad news disclosures could prevent employees from leaving the firms by controlling these employees’ future prospects.I expect that the effects of these disclosure strategies are stronger for experienced and specialized employees in accounting and technology because they can better incorporate public accounting information into their labor decisions. However, employee turnoverwould be less sensitive to accounting disclosure when workers’ outside employment opportunities are restricted after the covenant not to compete became more enforceable. I plan to corroborate the causal inference using Section 404 of the Sarbanes–Oxley Actas a quasi-natural experiment that improves financial reporting quality, as well as using Regulation Fair Disclosure as an exogenous shock to voluntary disclosure.This proposal responds to the critical question raised by Bartov, Givoly, and Hayn (2002) about why MBE firms perform better. Using rich data on individual labor market decisions, I suggest that improved employee retention makes MBE firms outperformfirms that fall short of MBE. This study also sheds light on the best voluntary disclosure strategies that firms can use to win the competition for talent, leading to better future performance.Detail(s)
Project number | 9048276 |
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Grant type | ECS |
Status | Active |
Effective start/end date | 1/01/24 → … |