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

We study how firms' access to labor-market information affects investment and performance. To do so, we exploit salary history bans (SHBs), which restrict employers from asking applicants about prior pay, as shocks that remove a low-cost but potentially imperfect signal of worker productivity and expected labor costs. Using staggered SHB adoption in a difference-in-differences design, we find that firms reduce capital expenditures and R&D while improving investment efficiency. Productivity, profitability, and firm value rise initially, though these gains attenuate over time, consistent with persistently lower investment eventually limiting firms’ growth capacity. Additional findings suggest that SHBs create an input-information tradeoff: removing salary history raises uncertainty about future labor costs and match quality, discouraging irreversible investment, but also reduces reliance on an informative but imperfect signal, leading firms to make more disciplined hiring and capital-allocation decisions.