The Limited Corporate Response to DEI Controversies

Firms' diversity, equity, and inclusion (DEI) policies have received significant scrutiny in recent years, including their efficacy and role in long-term value creation. We provide new evidence on these issues by studying what is arguably the most important group of firms-those with identified problems. We find that in the wake of DEI controversies, firms shift their hiring practices toward recruiting diverse employees to presumably improve public perception of their DEI profiles. However, these effects are economically small and largely superficial. Despite these limited firm responses, we find these controversies have important negative stock price implications, which are largely offset when firms make more meaningful DEI investments. Our findings suggest firms currently often do little to address public concerns regarding their DEI activities, despite their significant value implications.