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By Karen-Janine Cohen
When it comes to evaluating a company's financial health, employees often have the inside track. Now, FIU Business research about social media posts is backing that notion. And, it turns out, employees are especially prescient when things are going badly.
Xiaochuan (Kelly) Huang, an associate professor of accounting at FIU Business who conducted the study, looked at predictions employees made of their companies' six-month financial outlook that were posted to Glassdoor.com, a website that allows employees to anonymously report a host of company information, including salaries, reviews of company culture and other details.
"Our main design is to show that the business outlook information is incremental to historical accounting information in predicting future firm performance," said Huang. Traditional accounting information of necessity analyzes past performance, whereas the employees' posts are a snapshot of what is currently happening, or recently occurred, she said.
The study, published in the March 2020 issue of The Accounting Review, evaluated public companies focusing on the six-month outlook, which Glassdoor asks its participants to provide. The results show that employees' predictions correlate closely to future operating performance, and the predictive ability is stronger when the predictions are aggregated from a larger, more diverse, more knowledgeable employee base.
"IT MAY COME FROM THE FACT THAT EMPLOYEES ARE GENERATING INFORMATION FROM THE JOBS, AND THE BENEFIT IS NOT ONLY THE TIMING, BUT ALSO THE NATURE OF THE INFORMATION."
Xiaochuan (Kelly) Huang
"It may come from the fact that employees are generating information from the jobs, and the benefit is not only the timing, but also the nature of the information," Huang said.
Interestingly, employees' average outlook was a stronger predictor of bad performance than of good performance, Huang noted. Huang also sorted the information according to job functions, as well as by length of employment; whether full-time or part-time; managerial status and other attributes.
"We find a dramatic difference in the amount of information linked to attributes," she said. For example, the full-time employee outlook is more informative than the part-time outlook. And, she noted, longer-tenured employees have a more informative view than those who have been on the job a shorter period of time.
"The implication is that, if you want to look at a detailed aspect of a firm's performance, go to detailed information provided by a (specific) group of employees," Huang said.
Huang conducted the study with Meng Li and Stanimir Markov, both from the University of Texas at Dallas.
