Financial misconduct and employee mistreatment: Evidence from wage theft

I examine the relation between firms’ financial conduct and wage theft. Wage theft represents the single largest form of theft committed in the United States and primarily affects firms’ most vulnerable employees. I show that wage theft is more prevalent (i) when firms just meet or beat earnings targets and (ii) when executives’ personal liability for wage theft decreases. Wage theft precedes financial misconduct while the theft is undetected, but once firms are caught engaging in wage theft they are more likely to shift to engaging in financial misconduct. My findings highlight an economically meaningful yet previously undocumented way in which firms’ financial incentives relate to employee treatment.

Corporate Social Responsibility and Technological Innovation

This study examines the relation between corporate social responsibility (CSR) and firm innovation. We replicate and extend the work of Mao and Weathers (2019), who investigate employee treatment and innovation, and find that CSR has an incremental effect on innovation outcomes (measured as citation-weighted patent counts) beyond the documented effect of employee treatment. The CSR effect mostly comes from CSR strengths rather than concerns. This effect remains robust after we address potential endogeneity concerns using three identification strategies. We also find that the CSR effect exists only in situations of more effective board monitoring, stronger CEO leadership, and greater employee human capital, and is greater in complex firms. Our overall evidence is consistent with the argument that CSR enhances technological innovation as it helps firms develop internal resources and capabilities related to creative corporate culture, long-term orientation, and employee knowledge and skills that are critical and conducive to innovation success.

Why Do Banks Favor Employee-Friendly Firms? A Stakeholder-Screening Perspective

We investigate why employee-friendly firms often benefit from lower costs of debt financing. We theorize that banks use employee treatment as a screen to assess firms’ trustworthiness, which encompasses not only confidence in firms’ ability to perform well but also the belief that they will act with good intent toward their creditors. We integrate screening theory and stakeholder theory to explain the—oftentimes unintended—consequences that firms’ actions toward employees have on their relationships with other stakeholders. An analysis of U.S. firms between 2003 and 2010 shows that favorable employee treatment reduces the cost of bank loans, and this relationship is stronger when banks cannot infer firms’ intent from their relations with stakeholders other than employees. A policy-capturing study provides further support that employee treatment serves as a screen for intent. We discuss the implications of our stakeholder-screening perspective as a novel way to understand the second-order, unintended effects of a focal stakeholder relationship on firms’ relations with other stakeholders.