This study is motivated by the increasing importance of diversity and inclusion policies in corporate governance, coupled with growing societal expectations for firms to demonstrate social responsibility through measurable practices. This study aims to examine the association between lesbian, gay, bisexual, transgender and queer (LGBTQ)-friendly corporate policies and financial market outcomes, particularly stock liquidity, addressing a gap in the empirical evidence on inclusivity and market microstructure outcomes.
Building on stakeholder theory and the corporate governance literature, the authors use a sample of US-listed firms from 2003 to 2019. The study uses multiple econometric techniques to ensure robustness, including instrumental variable regression and propensity score matching to control for potential selection bias. Moderating analyses are also conducted to explore the differential impact of firm information environments and governance settings on the core relationship.
The results show a positive association between LGBTQ equality policies and stock liquidity. This relationship is more pronounced in firms with weaker governance and less transparent information environments. These findings suggest that the association between LGBTQ equality policies and liquidity varies across firms, rather than being uniform across all settings.
Although the results are in line with interpretations related to information and transparency, the authors do not test these channels directly. The findings should, therefore, be viewed as evidence of an association rather than a causal relationship. Future research could examine more direct measures, such as analyst forecasts, disclosure quality or media coverage. In addition, this study focuses on stock liquidity; further work could consider other outcomes, including volatility, cost of debt or longer-term firm performance.
For corporate managers, the results suggest that LGBTQ-inclusive policies may be related to how the firm is viewed in capital markets, particularly in settings where governance or information conditions are weaker. For investors, the findings indicate that diversity and inclusion practices may offer additional context when assessing a firm’s stock liquidity. For policymakers, the documented relationship may be relevant in ongoing discussions on corporate social responsibility and disclosure practices.
This study provides evidence on the relationship between corporate LGBTQ equality policies and stock liquidity. By focusing on LGBTQ-specific workplace policies rather than aggregate environmental, social and governance measures, it highlights a distinct aspect of firm behavior. The results also show that this relationship varies across firms, with stronger patterns observed in weaker governance and information environments.
