Financial Disclosure Transparency and Employee Wages
53 Pages Posted: 23 Jan 2018 Last revised: 22 Apr 2020
Date Written: April 21, 2020
We test the hypothesis that less transparent financial disclosures are an undesirable firm attribute that increases the amount of information and unemployment risk that employees bear, resulting in a compensating wage differential. Using establishment-level wage data from the U.S. Census Bureau, we find evidence consistent with this hypothesis. We document that firms with less transparent disclosures pay their employees more, especially when employees bear greater information acquisition costs, have more influence in the wage-setting process, and own more stock in their firm. Our results also hold to utilizing instrumental variables and two quasi-natural experiments arising from the passage of the Sarbanes-Oxley Act as shocks to the transparency of a firm’s financial reporting environment.
Keywords: Transparency, Disclosures, Employee Wages, Management Forecasts, Readability
JEL Classification: M40, M41, J31
Suggested Citation: Suggested Citation