Employee Approval of CEOs and Debt Market Outcomes

ABSTRACT We examine whether employee‐based assessments of CEO quality convey value‐relevant information to debt markets. Using over half a million Glassdoor employee reviews from 2012 to 2018, matched to corporate bond issuance data for US firms, we study the relation between employee approval of CEOs and firms’ credit ratings and borrowing costs. We find that higher CEO approval predicts higher bond credit ratings and significantly lower at‐issue yield spreads, with the strongest formal cross‐sectional evidence among speculative‐grade issuers and directionally consistent evidence among smaller and highly leveraged issuers. The bond‐spread relation remains significant after controlling for firm and bond characteristics, firm fixed effects, and overall employee satisfaction, and we provide complementary evidence using orthogonalized CEO approval, instrumental variables, and change regressions. We further show that CEO approval mitigates increases in debt financing costs during the COVID‐19 crisis. Overall, our findings indicate that employee assessments of top executives provide incremental, priced information about firm risk that is incorporated into credit market outcomes.