Mandatory Gender Pay Gap Disclosure in the UK: Did Inequity Fall and Do these Disclosures Affect Firm Value?

Abstract

We study the 2017 UK rule requiring firms that employ more than 250 workers to publicly disclose gender pay gap data. We focus on two questions of interest to regulators and socially conscious investors: (i) does gender pay equity improve after mandatory disclosure? and (ii) is gender pay equity useful to investors in predicting future operating performance, stock returns, and Tobin’s Q? We find a 0.41% reduction in the gender pay gap after the implementation of gender pay gap reporting only in entities with between 250 and 499 employees but no change for entities with 500+ employees. Only 9% of these entities belong to publicly listed firms. Further analysis suggests a modest one-time levelling up in the gender pay gap, in anticipation of the rule, in the two-year period between when the rule was announced and when it went into effect (but no subsequent improvement). We also find a link between Employment Tribunal settlements – most commonly resulting from unfair dismissal cases brought by employees – and lower gender pay gaps, suggesting a potential unintended adverse consequence of the regulation. There is no robust association between gender pay gaps and ROA (return on assets), EBITDA, operating margins, and stock returns. We conclude that (i) the impact of the rule thus far is modest at best, and at worst may have had unintended consequences for existing employees; and (ii) the evidence linking gender pay inequity to firm value or operating performance is scant.