Do investors value DEI? Evidence from the Stop WOKE Act

Abstract

Using a natural experiment, this paper investigates whether capital markets value corporate Diversity, Equity, and Inclusion (DEI) initiatives. In 2022, Florida passed the Stop WOKE Act, which restricted DEI initiatives in the workplace. Upon the Act’s announcement, the market value of affected firms declined by 1.80% compared to others, with stronger effects for firms with more pro-social investors. These investors also reallocated capital away from affected firms more than other investors. Further analyses rule out expectations of increased political interference as an explanation. The results imply that investors collectively value corporate DEI initiatives and investor preference is the key mechanism.

Keywords: DEI, firm value, investors, stakeholders, preference, belief, Woke, State law. JEL Classification: G11, G14, G38, J15, M14