Financial Disclosure Transparency and Employee Wages

We test the hypothesis that less transparency in financial disclosures is an undesirable firm attribute that increases the amount of information and unemployment risk that employees bear, resulting in a wage premium. Using establishment-level wage data from the U.S. Census Bureau, we document that firms with less transparent disclosures pay their employees more, especially when employees bear greater information acquisition costs, have more influence in the wage-setting process, and own more stock in their firm. Our results also hold to utilizing instrumental variables and two quasi-natural experiments arising from the passage of the Sarbanes-Oxley Act as shocks to the transparency of a firm’s financial reporting environment. Overall, our results suggest that accounting disclosure choices can generate externalities on an important group of stakeholders.