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03.11.2023

Human bias in the oversight of firms: evidence from workplace safety violations

verfasst von: Jonas Heese, Gerardo Pérez-Cavazos, Andreya Pérez-Silva

Erschienen in: Review of Accounting Studies

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Abstract

We study the effects of mood as a source of human bias on regulators’ oversight and enforcement decisions. We use weather at facilities at the time of an OSHA inspection to proxy for the OSHA compliance officers’ mood. We find that, during periods of good mood due to sunny weather, the number of workplace safety violations and dollar penalties assessed by the officer decrease. These effects are more pronounced when OSHA officers have more discretion. In turn, the effect of mood on oversight and enforcement decisions can be mitigated by increased monitoring by the regional OSHA office. Furthermore, our results suggest that there is a slightly higher incidence of workplace accidents after “good mood” inspections. Overall our findings show that regulators’ mood results in bias in the oversight of firms.

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Fußnoten
1
OSHA oversees the health and safety of 130 million workers across the United States. It employs more than 1,800 agents, which, in 2019 alone, conducted more than 75,000 inspections (OSHA 2019a).
 
2
For example, the Securities and Exchange Commission (SEC) recently began requiring public companies to disclose material information about their workforce (SEC 2020) and brought its first enforcement action against Activision Blizzard for failing to maintain controls related to workplace misconduct that would have allowed the firm to assess the materiality of the misconduct issues (SEC 2023). Similarly, investment organizations increasingly demand disclosures on workplace health and safety (HCM 2017).
 
3
In the United States, 15 workers died every day from an on-the-job injury in 2019 (BLS 2020).
 
4
Specifically, we can hold constant other potential drivers of enforcement decisions that remain invariant in the short run, such as OSHA policies, resources, or officers’ expertise and incentives.
 
5
For example, an experiment by Batra and Stayman (1990) shows that individuals in a good mood are less critical of print advertisements and exhibit a more positive attitude toward the advertiser.
 
6
For example, in a mood experiment, Sinclair et al. (1994) show that on days with unpleasant weather, individuals distinguish between strong and weak arguments, whereas, on pleasant days, they do not.
 
7
For example, §1910.95(c)(1) in Title 29 of the Code of Federal Regulations (CFR) specifies that “[t]he employer shall administer an effective hearing conservation program … whenever employee noise exposures equal or exceed an 8-h time-weighted average sound level (TWA) of 85 decibels.”.
 
8
For example, historically, OSHA officers were evaluated based on the number of violations and penalties they assessed (OSHA 1995).
 
9
The tests use a continuous variable for sunshine, but we refer to sunny and cloudy days for ease of interpretation.
 
10
A 0.68% reduction in violations results in nine fewer violations per day, obtained by multiplying the average number of violations per inspection (3.46) by the number of inspections per day (380).
 
11
For example, the OSHA process has a short timeframe between inspections and enforcement decisions. Processes with longer timeframes, such as SEC enforcement, may offer opportunities to correct human biases, but workload or path dependence may prevent that.
 
12
There are a few notable exceptions. For example, Raghunandan and Ruchti (2021) show information frictions within OSHA’s local offices. Johnson et al. (2020) find that improved inspection targeting can reduce injuries. And Heese and Pérez-Cavazos (2021) show the importance of employees’ tips for OSHA enforcement.
 
13
One exception is the study by Heese (2019), who shows that political pressure in response to public interest can shape SEC enforcement actions.
 
14
Glöckner (2016) points out that Danziger et al.’s (2011) findings are driven by “selective dropouts and rational time management when to end a session in order to complete cases or sets of cases within it” but not judges’ mental depletion.
 
15
State Plans are approved and monitored by federal OSHA. State Plans must “be at least as effective” (ALAE) as federal OSHA “in protecting workers and in preventing work-related injuries, illnesses and deaths” (OSHA 2022a, b, c). Monitoring takes place annually through a Federal Annual Monitoring Evaluation (FAME).
 
16
This includes both federal and state OSHA inspectors and inspections.
 
17
For example, to meet the basic education requirement an OSHA industrial hygienist, the individuals who conduct inspections of industrial firms, must have a bachelor’s or graduate/higher level degree in industrial hygiene, occupational health sciences, occupational and environmental health, toxicology, safety sciences, or related science (USAJOBS 2022). Alternatively, an industrial hygienist may have a bachelor’s degree in a branch of engineering, physical science, or life science, or a certification from the American Board of Industrial Hygiene.
 
18
For example, to meet the specialized experience requirement an industrial hygienist must have at a minimum 52 weeks of experience in that person’s prior position. This specialized experience can at times be substituted with higher levels of education, such as a masters or PhD degree (USAJOBS 2022).
 
19
For example, accountants entering the SEC Division of Enforcement “typically have outside work experience which can include public company auditing, financial statement preparation, conducting in-depth forensic accounting examination and analysis of financial records and recordkeeping systems, and experience using Generally Accepted Accounting Principles (GAAP) and PCAOB Auditing Standards” (SEC 2007).
 
20
Violations typically do not result in follow-up inspections. Instead firms must submit an abatement certification letter, which is an affidavit stating that the hazard has been corrected or, for more serious items, abatement documentation, which is “proof of correction” and includes evidence such as pictures or receipts.
 
21
The OSHA dataset, which includes both Federal OSHA and State Plan OSHA inspections, is available at https://​enforcedata.​dol.​gov/​views/​data_​summary.​php.
 
22
Our results are robust to including facilities with fewer than 10 employees.
 
23
OSHA is responsible for supervising workplace safety in both government and nongovernment facilities, but unique policies apply to government facilities (see Chapter 13 of the Field Operations Manual). For example, the Secretary of Labor can approve alternate standards for specific federal agencies. Moreover, monetary penalties do not apply to federal agencies.
 
24
To calculate the distance between facilities and weather stations, we use the haversine distance formula, where the coordinates of each facility are defined by the centroid of the five-digit zip code. Given the long span of our sample period, the closest weather station for a given facility may change over time. The average distance between facility and weather station for the inspections in the sample is 10.3 miles.
 
25
The data do not contain OSHA officers’ identifiers, precluding the inclusion of officer fixed effects. However, this data limitation would only affect our inferences if many OSHA officers selectively conducted inspections only during sunny days and stayed in the office during cloudy days. As the OSHA office schedules inspections and assigns officers, this concern is unlikely to affect our results.
 
26
OSHA officers can expand the scope of the inspection if they determine that there are significant additional hazards.
 
27
The differences in violations and penalties between routine and nonroutine inspections are computed by taking the exponential of the Non_Routine_Inspection coefficients in Table 4 Panel A and then subtracting one.
 
28
We compare the effect of mood on nonroutine inspections to the full sample by dividing the sum of the ɑ3 and ɑ1 coefficients from Table 4 Panel A by the coefficient of Sunshine in Table 3 Columns 2 and 6. For violations, –0.0052 + 0.0005) / (–0.0026) = 2.2.
 
29
For example, see point “XIV. Inspection Procedures” of Directive CPL 03–00-018. Available at https://​www.​osha.​gov/​sites/​default/​files/​enforcement/​directives/​CPL_​03-00-018.​pdf.
 
30
Employers must notify OSHA about catastrophes. For example, fatalities must be reported within eight hours, and in-patient hospitalizations and amputations must be reported within 24 h.
 
31
It could also be interesting to examine complaints against inspectors or inspector terminations. However, such data is unavailable.
 
32
The implicit assumption is that each facility operates without accidents during the remainder of the year.
 
33
During our sample period, inspectors cited the violation of 121,871 standards.
 
34
In addition, facilities that are subject to more than one inspection are likely to also differ from those with only one inspection. For example, the average facility with multiple inspections employs approximately twice as many people as facilities with one inspection.
 
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Metadaten
Titel
Human bias in the oversight of firms: evidence from workplace safety violations
verfasst von
Jonas Heese
Gerardo Pérez-Cavazos
Andreya Pérez-Silva
Publikationsdatum
03.11.2023
Verlag
Springer US
Erschienen in
Review of Accounting Studies
Print ISSN: 1380-6653
Elektronische ISSN: 1573-7136
DOI
https://doi.org/10.1007/s11142-023-09807-3