Many animals use coloration to communicate with other individuals. While the signalling role of avian plumage colour is relatively well studied, there has been much less research on coloration in avian bare parts. However, bare parts could be highly informative signals as they can show rapid changes in coloration. We measured bill colour (a ubiquitous bare part) in over 1600 passerine species and tested whether interspecific variation in carotenoid-based coloration is consistent with signalling to potential mates or signalling to potential rivals in a competitive context. Our results suggest that carotenoid bill coloration primarily evolved as a signal of dominance, as this type of coloration is more common in species that live in social groups in the non-breeding season, and species that nest in colonies; two socio-ecological conditions that promote frequent agonistic interactions with numerous and/or unfamiliar individuals. Additionally, our study suggests that carotenoid bill coloration is independent of the intensity of past sexual selection, as it is not related to either sexual dichromatism or sexual size dimorphism. These results pose a significant challenge to the conventional view that carotenoid-based avian coloration has evolved as a developmentally costly, condition-dependent sexual signal. We also suggest that bare part ornamentation may often signal different information than plumage ornaments.