Skip to main content
Disciplines
Automotive Business IT + Informatics Construction + Real Estate Electrical Engineering + Electronics Energy + Sustainability Insurance + Risk Finance + Banking Management + Leadership Marketing + Sales Mechanical Engineering + Materials
Events
DE
EN
Books
Journals
Topic Page
Marketing
Start single access now
Access for companies
EXTENDED SEARCH
Log in
Top
Review of Quantitative Finance and Accounting
Published in: Review of Quantitative Finance and Accounting 2/2015

01-02-2015 | Original Research

Workforce diversity and shareholder value: a multi-level perspective

Authors: Kimberly M. Ellis, Phyllis Y. Keys

Published in: Review of Quantitative Finance and Accounting | Issue 2/2015

Log in

Activate our intelligent search to find suitable subject content or patents.

search-config
loading …

Abstract

Our study examines the effects of the racial diversity of a firm’s workforce on shareholder value. We show that the disclosure of racial diversity in firms yields significant, positive abnormal returns. We further test the effects of several indicators of both lower-level and upper-level workforce diversity in explaining variations in abnormal returns. Our results indicate that two measures of lower-level diversity, workforce heterogeneity and percent of minority new hires, and one measure of upper-level diversity, percent of minorities among the firm’s top paid executives, are significantly related to shareholder value. Also, research expenditures, is an important driver of shareholder value in diverse firms. Moreover, workforce heterogeneity is more essential to creating shareholder value in service firms where there is more direct interaction with end-user customers. Thus, consistent with arguments related to the resource-based view and the innovation hypothesis, our study provides empirical support that firms benefit from developing a racially diverse workforce at multiple levels within the organization.
next article Level of efficiency in the UK equity market: empirical study of the effects of the global financial crisis

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 102.000 Bücher
  • über 537 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe
  • Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 340 Zeitschriften

aus folgenden Fachgebieten:

  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Versicherung + Risiko




Jetzt Wissensvorsprung sichern!

inform now
Footnotes
1
Diversity can be defined in many ways (e.g., racial group, gender, educational background). In this study, we define diversity by the racial group of American employees in five categories (African, Asian, Hispanic, Native, or Caucasian). This definition is consistent with categories used on federal forms and data provided by Fortune in their rankings of diversity promoters.
 
2
Examples of recent articles include “The Executive Leadership Council: Building Shareholder Value through Diversity” by Judith L. Turnock in a special advertising section of the June 27, 2011 issue of Forbes and “Calvert Files 50th Shareholder Resolution on Board Diversity” published December 11, 2009 via Business Wire.
 
3
For example, in 2005 19 % of Wal-Mart’s shareholders supported a resolution requesting a comprehensive report on the firm’s diversity data. In 2006, 36 % of Home Depot’s shareholders supported a very similar resolution.
 
4
All private employers subject to Title VII of the Civil Rights Act of 1964 and having more than 100 employees are required each September to file a Standard Form 100 (commonly called EEO-1) with the Joint Reporting Committee of the Equal Employment Opportunity Commission (EEOC). Employers are requested to report the number of employees by ethnic group and gender for nine job categories, but are not required to share this information with shareholders or the public. Section 709(e) of Title VII guarantees confidentiality in the filing process for individual firms, but the EEOC annually publishes aggregate workforce data by industry classification and by geographic area.
 
5
The annual response rate to the Fortune survey is approximately 11 % (i.e., 130–140 out of 1,200 firms respond each year). In a survey sent to chief financial officers regarding capital structure choices, Graham and Harvey (2001) report that their response rate of 9 % is comparable to the response rates found in surveys from other recent academic studies. A potential sample bias exists if firms that lack diversity choose not to respond to the survey. Since diversity measures appear in our models as independent variables, we use transformations to correct for non-normality that may exist when censored data is used as a right-hand side variable.
 
6
We gratefully acknowledge the assistance of and insight provided by Jonathan Hickman, a writer on the Fortune diversity articles.
 
7
We compare the firm’s Compustat SIC code to the CRSP SIC code at the end of the year prior to ranking. Only two of the firms have codes that differ in type (service or manufacturing) according to their CRSP and Compustat industry codes. We classify these two firms as manufacturing.
 
8
We find similar values using the first year of ranking only for Panel B of Table 2. The median-adjusted operating income per employees goes to $0.133 and does become insignificantly different from zero with a p value of 0.13. All other median-adjusted values retain a comparable magnitude and level of significance regardless of whether we use all years or only first years.
 
9
To support the robustness of our findings of a significant market reaction to being ranked among the Fortune diversity elite, we split the sample in several ways. One possibility is there could be an effect related to the “boom” or “bust” periods in the market. Results reveal no significant difference at conventional levels between the two time periods (1998–2000 vs. 2001–2002) when considering all rankings and just first rankings. Also, there could be an effect based on the nature of firm’s business operations. Results reveal no significant difference at conventional levels between firms with primary operations in manufacturing versus service firms when considering all rankings and just first rankings.
 
10
We test for significant differences between market response of firms charged with past discrimination and those having no prior charges, but find no evidence that the response differs on the basis of the firm’s history of discrimination. T-statistics are approximately 0.2 regardless of whether we use equal-weighted adjustments, value-weighted adjustments, CARS, or standardized CARs.
 
11
We find that the coefficient estimate for size when measured as the log of the 3-year average total assets is insignificantly different from zero.
 
12
We also examine the percent minority officers and managers and the percent of minorities in the total workforce. Neither resulted in individually significant t-statistics or in increased explanatory power (as measured by adjusted R-squared). Using an indicator variable set to one if there are minorities on the board, and zero otherwise or the number of minorities on the board yield results similar to that obtained using percent of minorities on the board.
 
13
For both models, we compute robust t-statistics using the diagonal elements of the consistent covariance matrix. Condition indices and tolerance values do not indicate the presence of multicollinearity.
 
14
We get an insignificant model using level variables for all events (F statistic = 1.40, p value = 0.18). The level specification of the diversity variable suffers from non-normality, therefore a model using the change variable is better specified.
 
Literature
Athey S, Avery C, Zemsky P (2000) Mentoring and diversity. Am Econ Rev 90:765–786CrossRef
Barney J (1991) Firm resources and sustained competitive advantage. J Manag 17:99–120
Becker GS (1971) The economics of discrimination. University of Chicago Press, ChicagoCrossRef
Blau PM (1977) Inequality and heterogeneity: a primitive theory of social structure. Free Press, New York
Brown SJ, Warner JB (1985) Using daily stock returns: the case of event studies. J Financ Econ 14:3–31CrossRef
Carter DA, D’Souza F, Simkins BJ, Simpson WG (2010) The gender and ethnic diversity of US boards and board committees and firm financial performance. Corporate Gov: An International Rev 18:396–414CrossRef
Cook A, Glass C (2009) Between a rock and a hard place: managing diversity in a shareholder society. Hum Resour Manag Rev 19:393–412
Cox TH Jr (1993) Cultural diversity in organizations: theory, research and practice. Berrett-Koehler Publishers, San Francisco
Cox TH Jr, Blake S (1991) Managing cultural diversity: implications for organizational competitiveness. Acad Manag Executive 5:45–56CrossRef
Filbeck G, Gorman R, Zhao X (Forthcoming) Are the best of the best better than the rest? The effect of multiple rankings on company value. Rev Q Financ Acc. doi:10.​1007/​s11156-012-0329-5
Goff BL, McCormick RE, Tollison RD (2002) Racial integration as an innovation: empirical evidence from sports leagues. Am Econ Rev 92:16–26CrossRef
Graham JR, Harvey CR (2001) The theory and practice of corporate finance: evidence from the field. J Financial Econ 60:187–243CrossRef
Hanssen A (1998) The cost of discrimination: a study of major league baseball. South Econ J 64:603–627CrossRef
Herring C (2009) Does diversity pay? Race, gender, and business case for diversity. Am Sociological Rev 74:208–224CrossRef
Holzer HJ, Ihlanfeldt KR (1998) Customer discrimination and employment outcomes for minority workers. Q J of Econ 113:835–867CrossRef
Joshi A, Liao H, Roh H (2011) Bridging domains in workplace demography research: a review and reconceptualization. J Manag 37:521–552
Kalev A (2005) Gender and racial inequality at work: changing organizational structures and managerial diversity. Dissertation, Princeton University
Kim B, Burns ML, Prescott JE (2009) The strategic role of the board: the impact of board structure on top management team strategic action capability. Corp Gov Int Rev 17:728–743CrossRef
Logsdon JM, Van Buren HJ III (2009) Beyond the proxy vote: dialogues between shareholder activists and corporations. J Bus Eth 87:353–365CrossRef
McLeod PL, Lobel SA, Cox TH (1996) Ethnic diversity and creativity in small groups. Small Group Res 27:248–264CrossRef
Nelling E, Webb E (2009) Corporate social responsibility and financial performance: the “virtuous circle” revisited. Rev Q Financ Acc 32:197–209CrossRef
Pandey VK, Shanahan KJ, Hansen SW (2005) The relationship between shareholder wealth effects, diversity, and publicity as a marketing strategy. J Acad Mark Sci 33:423–431CrossRef
Richard OC (2000) Racial diversity, business strategy, and firm performance: a resource-based view. Acad Manag J 43:164–177CrossRef
Richard OC, McMillan A, Chadwick K, Dwyer S (2003) Employing an innovation strategy in racially diverse workforces. Group Organ Manag 28:107–126CrossRef
Richard OC, Barnett T, Dwyer S, Chadwick K (2004) Cultural diversity in management, firm performance, and the moderating role of entrepreneurial orientation dimensions. Acad Manag J 47:255–266CrossRef
Roberson QM, Park HJ (2007) Examining the link between diversity and firm performance. Group Organ Manag 32:548–568CrossRef
Robinson G, Dechant K (1997) Building a business case for diversity. Acad Manag Executive 11:21–31
Selmi M (2003) The price of discrimination: the nature of class action employment discrimination litigation and its effects. Tex Law Rev 81:1249–1335
Thomas DA (2004) Diversity as strategy. Harv Bus Rev 82:98–108
Von Bergen CW, Soper B, Foster T (2002) Unintended negative effects of diversity management. Public Pers Manag 31:239–251
Wright P, Ferris SP, Hiller JS, Kroll M (1995) Competitiveness through management of diversity: effects on stock price valuation. Acad Manag J 38:272–287CrossRef
Metadata
Title
Workforce diversity and shareholder value: a multi-level perspective
Authors
Kimberly M. Ellis
Phyllis Y. Keys
Publication date
01-02-2015
Publisher
Springer US
Published in
Review of Quantitative Finance and Accounting / Issue 2/2015
Print ISSN: 0924-865X
Electronic ISSN: 1573-7179
DOI
https://doi.org/10.1007/s11156-013-0403-7

Other articles of this Issue 2/2015

Review of Quantitative Finance and Accounting 2/2015 Go to the issue

Original Research

The impact of banking relationships, managerial incentives, and board monitoring on corporate cash holdings: an emerging market perspective

Original Research

Level of efficiency in the UK equity market: empirical study of the effects of the global financial crisis

Original Research

Economic benefits and determinants of extreme dependences between REIT and stock returns

Original Research

Did Bank Indonesia cause the credit crunch of 2006–2008?

Original Research

The impact of internet-based services on credit unions: a propensity score matching approach

Original Research

On the use of the market model R-square as a measure of stock price efficiency