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Employee treatment and Securities Exchange Commission investigations

Jennifer Brodmann (Department of Accounting, Finance, and Economics, California State University Dominguez Hills, Carson, California, USA)
Omer Unsal (Department of Accounting and Finance, Merrimack College Girard School of Business and International Commerce, North Andover, Massachusetts, USA)

Managerial Finance

ISSN: 0307-4358

Article publication date: 5 January 2023




The authors examine the impact of employee litigation on Securities Action Lawsuits. The authors study whether frequently sued firms are more likely to be investigated by Securities Exchange Commission (SEC). The authors study how labor relations are crucial to corporate governance.


The authors use hand-collected datasets of employee violations, misconducts and lawsuits and test whether bad employee treatment increases the likelihood of SEC probe. The authors' methodology includes panel fixed effects, as well as alternative measures of employee mistreatment and SEC case.


The authors find that with each increase in employee dispute increases the likelihood of the firm being investigated by the SEC. The authors find that geographically dispersed firms are more likely to be investigated by the SEC when facing employee disputes and that more labor union coverage and a higher unemployment rate triggers more employee allegations and labor-related lawsuits.


The authors' study is the first to investigate how employee relations affect firms involving federal investigation. The authors aim to contribute to the literature by studying (i) the relation between employee mistreatment and legal challenges, (ii) how firm characteristics affect the path from employee disputes to securities class actions and (iii) the impact of employee mistreatment on the corporate governance.



Research Involving Human and Animal Rights: This article does not contain any studies with human participants or animals performed by any of the authors.

This research did not receive any specific grant from funding agencies in the public, commercial or not-for-profit sectors.

Conflict of Interest: The authors declare that they have no conflict of interest


Brodmann, J. and Unsal, O. (2023), "Employee treatment and Securities Exchange Commission investigations", Managerial Finance, Vol. ahead-of-print No. ahead-of-print.



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