Will Diversity Equity and Inclusion Commitment Improve Manufacturing Firms’ Performance? A Signaling Theory Perspective on DEI Announcements

Commitment to support diversity, equity, and inclusion (DEI) has become a priority for American firms to meet current and future compliance, attract top talents, boost innovation, and improve financial performance. Due to its infancy, there is an ongoing debate and a lack of empirical studies regarding the implications of DEI commitment, especially for manufacturing firms. This observation motivates us to examine the impact of DEI commitment on 98 publicly listed manufacturing firms through the lens of Signaling Theory. By analyzing these firms’ financial and operations performance from 2014 to 2022, we find empirical evidence that DEI commitment announcements can generate positive abnormal stock returns around the event day (from day -2 to 0). Besides stock returns, we use the Heckman 2-stage model and independent sample t-tests of propensity score matching (PSM) to show that higher return-on-assets (ROA) and labor intensity could further positively moderate the impact of DEI commitment. Interestingly, DEI commitment announcements do not benefit some high-technology firms and may even backfire. We discuss the managerial implications of our findings.