What Do Employees Know? Evidence from a Social Media Platform
We use employee predictions of their companies’ six-month business outlook from Glassdoor.com to assess the information content of employee social media disclosures. We find that average outlook is incrementally informative in predicting future operating performance. Its information content is greater when the disclosures are aggregated from a larger, more diverse, more knowledgeable employee base, consistent with the wisdom of the crowd phenomenon. Average outlook predicts bad news events more strongly than good news events, lending support to the idea that employees have stronger incentives to gather information about unfavorable events. Consistent with organizational theory, we find systematic differences in the quantity and nature of the information in employee disclosures when the disclosures are grouped based on employee attributes and job responsibilities. Finally, average outlook predicts future analyst forecast errors and stock returns, suggesting that outlook is inefficiently used by analysts and investors.