Public Promises, Private Choices, and the Credibility of Commitments

Firms are increasingly discussing their commitment to diversity, equity, and inclusion in media targeted to job seekers. While evidence suggests firms face few costs from misrepresentation in investor-oriented disclosures, the costs of duplicitous disclosures differ in a voluntary setting by virtue of different intended audiences and incentives. Corporate websites are more likely to be consumed by job seekers than SEC filings or proxy statements; because firms face costs associated with poor match quality, and because job seekers can settle up ex post, firms have strong incentives to make disclosures consistent with true diversity levels. Using insights from a theoretical framework and from prior literature, I provide evidence that firms weigh the benefits of signaling strong diversity commitments against the reputational risks of misrepresentation. Voluntary diversity disclosures have a stronger relationship with true firm diversity than mandatory disclosures. When salient events occur where the public calls on firms to respond, it is the most diverse firms that increase DEI disclosures the most. Last, upwardly biased disclosures are less common in firms with expensive labor inputs and strong reputations.