Testing for Countersignaling in CSR Disclosures: Evidence from the Gender Pay Gap

Abstract

How informative is a firm's voluntary disclosure of its gender diversity? We focus on the FTSE 350 and exploit a 2017 UK regulation that mandates public disclosure of detailed gender pay gap (GPG) data. Using a firm's GPG revealed post-mandate to proxy for the firm's true gender diversity, we compare this proxy to a firm's voluntary disclosure on gender diversity in its 2015 annual report. Contrary to the prediction of traditional signaling models, our results show firms with the best GPGs make the least voluntary disclosures. We find support for two potential explanations: firms with the best GPGs countersignal by using nondisclosure to show their confidence in their gender diversity reputation; and firms with lower GPGs disclose because they have more room for improvement. As the negative relationship between gender diversity and voluntary disclosure implies, we find ESG ratings that rely heavily on disclosure give higher social scores to firms with worse gender pay gaps.