Do Corporate Diversity Initiatives Affect Profits and Returns

Abstract

We investigate the financial performance of firms that cultivate diversity in the workforce and develop relationships with other diverse stakeholders, using a wide variety of accounting, financial and market-based metrics. We find that firms with exemplary diversity records have a performance advantage over a matched set of peer firms, particularly in accounting-based profitability measures, but these advantages do not directly translate into gains for shareholders. the risk-adjusted excess returns of the diversity award-winners are virtually identical to the matching firms, and insignificantly different from zero. Our findings are consistent with the idea that diversity is a strategic initiative that provides firms with a competitive advantage, rather than just another aspect of firms' commitment to corporate social responsibility.