Does Workforce Diversity Predict Firm Performance?
Abstract
This paper provides evidence on the link between public firms’ employee diversity and future firm performance. It documents that employee ethnic diversity predicts one-year ahead returns and accounting performance. Although diversity predicts greater future earnings, cash flows, and innovation, it is also linked with greater stock price volatility and lower employee productivity. The relationship between employee diversity and stock returns is concentrated among firms with low levels of diversity, suggesting limits to benefits from increasing diversity. Overall, this study provides initial evidence on costs and benefits of firm-wide diversity.
Fields of Study & Subjects
Gender Diversity and Inequality
Corporate Finance and Governance
Entrepreneurship Studies and Influences
Publication details
- Journal / source
- Applied Finance Letters
- Volume
- 15
- Issue
- 1
- Pages
- 16–28
- Publication date
- 25 June 2026
- Language
- EN