Managing Employee Retention Concerns: Evidence from US Census Data. Labro, E. and J. Omartian (latest version: December 2021)

Using Census microdata on 14,000 manufacturing plants, we examine how firms man- age employee retention concerns in response to local wage pressure. We validate our measure of employee retention concerns by documenting that plants respond with wage increases, and do so more when the employees’ human capital is higher. Then, we document substantial use of non-wage levers in response to retention concerns. Plants shift incentives to increase the likelihood that bonuses can be paid: performance target transparency declines, as does the use of localized performance metrics for bonuses. Furthermore, promotions become more meritocratic, ensuring key employees can be promoted and retained. Lastly, decision-making authority at the plant-level increases, offering more agency to local employees. Lastly, we find evidence consistent with inequity aversion constraining the response to local wage pressure, and document spillovers in both wage and non-wage reactions across same-firm plants.

Predictive Analytics and Centralization of Authority. Labro, E., M. Lang and J. Omartian (latest version: December 2021)

We examine the relation between plant-level predictive analytics use and centralization of authority for more than 25,000 manufacturing plants using proprietary US Census data. We focus on headquarters authority over plants through delegation of decision- making and design of performance-based incentives. We find that increased predictive analytics use is associated with reduced delegation of decision-rights to local managers, increased centralization of control over data gathering and reduced plant managerial payrolls. In terms of incentives, predictive analytics use is associated with increases in the prevalence of performance-based bonuses, promotions and firings. Further, performance based targets increase in frequency, saliency and accuracy. Overall, our findings suggest that predictive analytics use is associated with increased centralization of authority in headquarters.

Aligned Auditors as Information Intermediaries Within Business Groups . Labro, E. , C. David, J. Pierk and C. Van Linden (latest version: December 2021)

We investigate if and how aligned auditors (where parent and subsidiary are audited by auditors from the same audit firm network) serve as information intermediaries within business groups. Using a sample of European groups, we show that aligned auditors, in contrast to unaligned auditors, increase the speed at which information is compiled and enhance the comparability of information within groups. We confirm these results through interviews which provide examples of how aligned auditors can improve information flows within groups. As a result of such information intermediation, we find that auditor alignment facilitates responsiveness to investment opportunities at the group and subsidiary level. Our contribution is of interest to audit committees who appoint auditors, regulators who consider group audits to be a priority topic, and to practitioners and academics alike by demonstrating the benefits of an important audit characteristic, auditor alignment, for the internal information environment of business groups.