New research conducted by Professors Judson Caskey of the UCLA Anderson School of Management and Naim Bugra Ozel from the Naveen Jindal School of Management at UT Dallas and published in the Journal of Accounting and Economics finds that managers of U.S. companies facing market pressures to meet earnings expectations may risk the health and safety of workers to please investors.

Ozel and Caskey found the cause of the increase in injuries to be related to efforts to increase production and profits by increasing employee workloads and spending less on training or preventative maintenance. Companies that comfortably beat or completely missed analysts’ projections had lower injury and illness rates than those companies which appeared to be scrambling to meet or slight exceed analysts’ projections.

Using injury data from OSHA and companies’ financial data, the researchers examined company spending and worker output. They found that discretionary expenditures are associated with high injuries in firms that meet or just beat expectations, which is consistent with the conclusion that companies reduce safety-related expenditures such as oversight and employee training.

“We know that firms try to meet earnings benchmarks because the benchmarks have implications for the firms,” Ozel said. “If firms do not meet these benchmarks, then investors punish them, and stock prices go down significantly after a miss of earnings expectations. That gives managers incentive to use the tools they have to ensure they are going to perform at least to the expectations.”

The study also found that higher employee output is associated with higher rates of injuries in these firms.

“Our research suggests that there is also an increase in the workload of the employees, so it’s not just cutting expenditures, but asking employees to work a little harder,” Ozel said. “That might be in the form of overtime, or that might be in the form of putting in more work in a shorter time period. If employees are forced to work harder, they might inadvertently ignore the safety procedures themselves.”

The researchers identified three factors that affect the relationship between injuries and meeting or just beating expectations.

  • The relationship is weaker in highly unionized industries, which relates to unions’ role in negotiating for and enforcing safety measures.
  • The relationship is weaker in firms with a large amount of government contracts, which relates to the government requiring certain safety standards.
  • The relationship is weaker in states where injuries translate into higher workers' compensation costs.
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