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

Despite an increasing emphasis on diversity, equity, and inclusion (DEI), there is a noticeable gap in empirical research concerning its implications, particularly within the manufacturing sector. In response, we scrutinize the impact of DEI commitment on publicly traded manufacturing corporations through the lens of signaling theory. We employ an event study methodology and use structural topic modeling to analyze 233 DEI-commitment announcements issued by 161 firms over a 10-year period between 2013 and 2022. Our findings suggest that DEI-commitment announcements can yield positive abnormal stock returns during the announcement period (from day -1 to 0 and from day -1 to 5). The impact is heightened when the announcement places a stronger emphasis on DEI than non-DEI topics and when it focuses on specific DEI-related subjects, which are referred to here as signal strength and signal specificity. We also discuss the managerial implications of our findings.