Diversity Washing

We provide large-sample evidence on whether U.S. publicly traded corporations use voluntary disclosures about their commitments to employee diversity opportunistically. We document significant discrepancies between companies' external stances on diversity, equity, and inclusion (DEI) and their hiring practices. Firms that discuss DEI more than their actual employee gender and racial diversity (“diversity washers”) obtain superior scores from environmental, social, and governance (ESG) rating organizations and attract more investment from institutional investors with an ESG focus. These outcomes occur even though diversity-washing firms are more likely to incur discrimination violations and have negative human-capital-related news events. Our study provides evidence consistent with growing allegations of misleading statements from firms about their DEI initiatives and highlights the potential consequences of selective ESG disclosures.

Keywords: Diversity disclosure; Human capital; Social washing; Environmental, social, and corporate governance (ESG)

JEL Classification: G30, G34, G23, M14

Suggested Citation: Suggested Citation

Baker, Andrew and Larcker, David F. and McClure, Charles and Saraph, Durgesh and Watts, Edward, Diversity Washing (August 21, 2023). Chicago Booth Research Paper No. 22-18, Rock Center for Corporate Governance at Stanford University Working Paper No. 151, Stanford University Graduate School of Business Research Paper No. 4298626, European Corporate Governance Institute – Finance Working Paper No. 868/2023, Available at SSRN: https://ssrn.com/abstract=4298626 or http://dx.doi.org/10.2139/ssrn.4298626