SYNOPSIS In 2020, the SEC issued amendments to Regulation S-K requiring filers to provide discussions of their human capital (HC) management practices. We investigate how firms respond during the first two years under this principles-based disclosure mandate. We find that disclosure is influenced by firms’ general reporting styles, institutional ownership, product market competition, and HC performance. Rather than progressing toward “best in class” practices, firms exhibit regression toward the mean on all qualitative characteristics: length, topics, specificity, numerical intensity, readability, and similarity. Firms with initially poorer (better) quality disclosures improve (worsen) their disclosure quality in the second year, resulting in a convergence toward mediocrity. Despite these limitations, HC disclosures are value relevant, albeit conditionally so—disclosures are only associated with firm valuations for HC-intensive firms. Our findings suggest that principles-based regulation without specific requirements may not naturally lead to high-quality disclosures, but imperfect disclosures nevertheless provide valuable information to market participants. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G38; J80; M41; M48.
Demers et al. (Sun,) studied this question.