August 26, 2021 • By Keith Giles
When Professor Chenqi Zhu of The UCI Paul Merage School of Business wanted to measure the influence of social media on corporate policy, she decided to study how firms respond to the increased transparency of sites like Glassdoor, which collects reviews on employee satisfaction and publishes these reviews online. She reports her findings in a paper, cowritten with Assistant Professor Svenja Dube of the Fordham University Gabelli School of Business and forthcoming from the Journal of Accounting Research, titled “The disciplinary effect of social media: Evidence from firms' responses to Glassdoor reviews.”
“I’ve always been interested in the different ways that social media has changed our life, work, and society as a whole,” says Zhu. “In the corporate world, we’ve seen a lot of conversations about how companies can use social media to extend their reach, control their branding and so on. But social media aggregates and disseminates everyone’s opinion, beyond the ones initiated by companies, and those opinions can in turn shape how companies operate.”
While previous research in accounting and finance has centered on the role social media plays in the way companies communicate information about themselves to customers and potential employees, relatively little research has examined the real impact of social media on corporate policies.
“In recent years we’ve seen a large number of news articles about how social events are facilitated by social media,” Zhu says. “Mostly as a bottom-up approach—to organize events and ‘change the world’ to some extent. So given all this, my co-author Svenja Dube and I were curious about the real consequences of social media on the corporate world.”
To narrow things down, Zhu and Dube focused on a few specific issues: workplace culture and employee relations, along with diversity and inclusion. “We wanted to measure how social media affects the workplace environment,” says Zhu, “and we also wanted to be as clear as possible about the scope of that impact.”
Through a glass door…
To quantify the impact of social media on corporate policies and culture, Zhu and Dube zeroed in on the influence of one website in particular: Glassdoor. “We turned to Glassdoor because we wanted to get a clear picture of how employee reactions and ratings on social media impacted a company—either positively, negatively or not at all.”
Their idea was to see how the Glassdoor platform impacted a company’s working environment by looking at the impact the site had on companies since the site launched in 2008. “We compared company workplace policies around the time of its first Glassdoor review,” says Zhu.
“Our goal was to measure workplace environment changes both before and after the emergence of Glassdoor reviews. We collected thousands of reviews and identified when each firm was reviewed for the first time. We measured a firm’s workplace policies and friendliness to employees using KLD rating, which quantifies the social responsibility performance of companies and gives very specific performance indicators in areas like employee relations, diversity, environmentally-friendliness and the like.”
A powerful incentive
With the emergence of more transparency-focused social media platforms, companies are forced to take their employee policies more seriously. “As you would imagine, it’s important for companies to improve their public image on the platform,” says Zhu. “Job candidates will read Glassdoor reviews when applying for jobs or when comparing offers.”
That pressure raises concerns that some businesses will try to manipulate the system. “They may push employees to give a positive review or write a fake testimonial,” Zhu says, “but Glassdoor—and other social media platforms—have programs in place to mitigate disingenuous reviews. So, while it’s very hard to eliminate false reviews completely, even using sophisticated AI to detect and eliminate them, we do not think that’s all what is going on. We try to identify suspicious reviews and find very similar results after excluding all of them.”
By looking at company employee policies prior to the launch of Glassdoor and studying policy changes made after the website began collecting reviews, Zhu and Dube clarified the impact of the site on those companies. “To identify the impact of workplace transparency, we exploited the firms’ staggered exposure to Glassdoor reviews using a generalized difference-in-differences research design,” says Zhu. “We find that companies improve their policies on work-life balance, compensation & benefits, as well as employee diversity and inclusion. The effect is especially strong for labor-intensive firms, as attracting talent is particularly important for them.”
With transparency comes growth
What they found wasn’t as surprising as it was comforting. “Real improvements in employee policies translated into better reviews on Glassdoor,” says Zhu. “On average, companies had improved ratings and companies with worse initial ratings saw a stronger increase over time.”
When asked why such positive changes in company policies were observed, Zhu says there were two main factors at play: “First, some company information was not widely available to outsiders seeking a job at a firm prior to the emergence of Glassdoor. Secondly, even if outsiders can find additional information elsewhere, Glassdoor makes this sort of information easier to access. Because reviews are now publicly available, companies are now pressured to improve their workplace policies.”
Zhu feels that her research has wide-reaching implications for how social media positively influence corporations. “We can learn some general lessons from our study using Glassdoor as the laboratory,” she says. “What we discovered is that Glassdoor is a decentralizing market-based mechanism that enhances transparency by tapping into the wisdom of the crowd. We find that companies are already proactive in responding to negative reviews on platforms like Glassdoor by adjusting their employee policies. What’s more, companies tend to prioritize those policies that are more visible on social media. This suggests the alignment between the information content and corporate policies seems to be critical for a real effect to take place.”
In other words, despite potential misuse, social media can also help promote social goals.
Chenqi Zhu is an assistant professor of accounting at The UCI Paul Merage School of Business. She received a BA in finance & BS in mathematics from Renmin University of China, a master’s in economics from the Chinese University of Hong Kong, and a PhD in accounting from New York University. Her current research interests primarily lie in the intersection of information and innovation. She has studied knowledge diffusion, information dissemination and price discovery in product, technology and capital markets, as well as information frictions in the peer-to-peer lending market. She is also interested in exploring big data and applying natural language processing techniques to study the decision making of market participants such as managers and different groups of investors.