Using Disclosure of the Work Opportunity Tax Credit as an Indicator of Prosocial Employment Practices

Increasing interest in the social pillar of ESG incentivizes ESG fund managers to seek indications of companies’ commitments to prosocial activities. We examine whether financial statement disclosure of the Work Opportunity Tax Credit (WOTC) increases the likelihood that a company is included in funds with a focus on the social pillar of ESG. The WOTC is a federal tax incentive for hiring individuals who have historically faced barriers to employment. We find companies disclosing the WOTC are more likely to be included in funds with a focus on the social pillar of ESG, relative to a balanced control sample. However, employees at disclosing companies provide less favorable Glassdoor ratings and reviews. Our results are consistent with ESG fund managers using WOTC disclosure as an indicator of prosocial employment practices, but the relatively more negative employee perceptions at disclosing firms suggest WOTC disclosure may not be a credible indicator.