Charles A. Dice Center for Research in Financial Economics Is Public Equity Deadly? Evidence from Workplace Safety and Productivity Tradeoffs in the Coal Industry

We study how ownership structure, in particular public listing status, relates to workplace safety and productivity tradeoffs. Theory offers competing hypotheses on how listing-related frictions affect these tradeoffs. We exploit detailed asset-level data in the U.S. coal industry and find that workplace safety deteriorates dramatically under public firm ownership, primarily in mines that experience the largest productivity increases. Our results suggest that the tradeoff towards higher productivity and poorer workplace safety for public firms is concentrated in circumstances when information asymmetry problems between managers and shareholders are exacerbated, and when private firm owners’ ties to the local community are stronger. ∗For their helpful comments and suggestions, we thank Elsa Allman, Zahi Ben-David, Rebecca De Simone, Dave Denis, Scott Guensey, Jon Karpoff, Gabriele Lattanzio, Victor Lyonnet, Ed Rice, Sophie Shive, Austin Starkweather, Philip Strahan, René Stulz, and Michael Weisbach, as well as brownbag, seminar, and conferences participants at Ohio State University, University of Washington, University of Tennessee, the Young Scholars Finance Consortium, the Financial Markets and Corporate Governance Conference, the International Conference of the French Finance Association, and the Virtual Finance Seminar hosted by Michigan State University and the University of Illinois Chicago. We are also very grateful to Reza Noorani and Victor Yu at the Mine Safety and Health Administration for gracefully answering our many data requests and questions. Hoa Briscoe-Tran provided excellent research assistance. †University of Pennsylvania, The Wharton School. Email: gilje@wharton.upenn. edu ‡Ohio State University, Fisher College of Business. Email: wittry.2@osu.edu Electronic copy available at: https://ssrn.com/abstract=3893627 How does ownership structure affect workplace safety and firm productivity? Privately held and publicly traded firms are responsible for roughly equal portions of U.S. economic output, but are subject to large differences in agency and financial frictions, which can lead to significant variation in policies and real outcomes (Gilje and Taillard, 2016). While extant literature has explored economic mechanisms that affect workplace safety (Cohn and Wardlaw, 2016; Cohn et al., 2021b) and firm productivity (Bai et al., 2018), evidence on how ownership structure affects these outcomes and potential tradeoffs is limited. In this paper, we focus on one distinct dimension of variation in ownership structure, public listing status, and study how listing related frictions affect potential tradeoffs that firms face between workplace safety and firm productivity. Theory offers competing predictions on how listing status might relate to workplace safety. The cost of adverse workplace incidents could be higher for public companies, which have greater disclosure requirements (Christensen et al., 2017) and are subject to greater stockholder and political pressure. Moreover, public firms could have higher reputational risk than private firms due to greater media exposure and public awareness (Chen et al., 2004). Finally, public firms have greater access to external capital markets (Brav, 2009), potentially mitigating the need for constrained firms to cut safety investment (Cohn and Wardlaw, 2016). These factors each point towards public firms having safer workplaces than their private counterparts. Alternatively, there are reasons to believe that privately held companies could have fewer workplace injuries and accidents. For example, due to information asymmetry arising from diffuse ownership, public firm managers may face additional pressure to cut costs on workplace safety to increase profits. Relatedly, private firms may have non-diversified owners with strong social ties to their local community, and may derive personal utility from a safe workplace and good relationships with employees. Lastly, the greater dispersion of ownership in public firms leads to greater risk-sharing opportunities among shareholders (Pagano, 1993; Pagano et al., 1998), which may manifest in additional safety risk. These factors would suggest that public firms engage in activities that result in a higher workplace injury and ac-