Silencing Salary Talk: How Salary History Bans Affect Corporate Investment and Performance

We study how corporate investment, capital allocation, and performance respond to losing access to hiring-related information. We exploit state-level salary history bans (SHBs) that prohibit employers from asking job applicants about prior pay in an effort to reduce wage discrimination as plausibly exogenous shocks. SHBs remove a commonly used signal of worker productivity, raising anticipated labor costs and hiring uncertainty. Using a difference-in-differences research design, we find that firms reduce capital and R&D expenditures in response to SHBs, especially those that are more reliant on skilled labor or unable to automate. However, this shift towards more cautious investment strategies reduces overinvestment. This improved capital allocation—alongside better worker-firm matching and morale, as reflected in greater employee satisfaction—translates into higher profitability, productivity, and firm value. Overall, our findings reveal that restricting hiring-related information reduces investment but enhances capital allocation and workplace quality, ultimately improving firm performance despite greater hiring uncertainty.