Mandatory Gender Pay Gap Disclosure in the UK: Did Inequity Fall and Do these Disclosures Affect Firm Value?

57 Pages Posted: 15 Jun 2021

See all articles by Aneesh Raghunandan

Aneesh Raghunandan

London School of Economics

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation

Date Written: June 12, 2021

Abstract

We study the 2017 UK rule requiring firms that employ more than 250 workers to publicly disclose gender pay gap data. We focus on two questions of interest to regulators and socially conscious investors: (i) does gender pay equity improve after mandatory disclosure? and (ii) is gender pay equity useful to investors in predicting future operating performance, stock returns, and Tobin’s Q? We find a 0.41% reduction in the gender pay gap after the implementation of gender pay gap reporting only in entities with between 250 and 499 employees but no change for entities with 500+ employees. Only 9% of these entities belong to publicly listed firms. Further analysis suggests a modest one-time levelling up in the gender pay gap, in anticipation of the rule, in the two-year period between when the rule was announced and when it went into effect (but no subsequent improvement). We also find a link between Employment Tribunal settlements – most commonly resulting from unfair dismissal cases brought by employees – and lower gender pay gaps, suggesting a potential unintended adverse consequence of the regulation. There is no robust association between gender pay gaps and ROA (return on assets), EBITDA, operating margins, and stock returns. We conclude that (i) the impact of the rule thus far is modest at best, and at worst may have had unintended consequences for existing employees; and (ii) the evidence linking gender pay inequity to firm value or operating performance is scant.

Keywords: gender pay gap; ESG; labor practices; mandatory disclosure; U.K; socially conscious investors; inequity; operating performance; shareholder value; stakeholders

JEL Classification: M14, G23, G34

Suggested Citation

Raghunandan, Aneesh and Rajgopal, Shivaram, Mandatory Gender Pay Gap Disclosure in the UK: Did Inequity Fall and Do these Disclosures Affect Firm Value? (June 12, 2021). Columbia Business School Research Paper , Available at SSRN: https://ssrn.com/abstract=3865689 or http://dx.doi.org/10.2139/ssrn.3865689

Aneesh Raghunandan (Contact Author)

London School of Economics ( email )

United Kingdom

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

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