The Effect of Selective Disclosure on Employee Evaluations

Abstract

In response to simultaneous pressures for greater environmental performance and transparency, firms may selectively disclose information on their environmental footprint, a form of greenwashing. Companies employ this strategy primarily to manage the impressions of external audiences in the hope that they do not uncover the reality. We argue that in contrast to external audiences, employees due to being internal members of the firm, possess superior information about the firm making it difficult for such strategies to be successful. In this work, we investigate how selective disclosure affects internal audiences, specifically employee evaluations. We utilize exogenous variation in firm incentives to selectively disclose environmental impacts provided by the swinging of traditionally democratic election states in the 2016 US presidential elections as the basis of our empirical strategy. Our analyses suggest that selective disclosure negatively affects a firm’s employee ratings, because employees react unfavourably to lack of transparency and that this negative impact is independent from external audiences detecting the firm’s selective disclosure. These results produce important implications as they uncover hidden human capital costs associated with selective environmental disclosure.