Abstract

This paper empirically investigates the impact of ethnic diversity on firm performance and applies systematic analysis of the possible channels with which this can happen. Using unit record data on 28,088 publicly listed firms in 62 countries, we first adopt indices of ethnic diversity for countries and then examine its impact on various measures of firm performance. Our empirical analyses show that higher levels of ethnic and linguistic heterogeneity are associated with poorer firm performance. This finding is consistent across various measures of firm performance and is robust to several sensitivity checks. We argue that the observed negative effect of ethnic diversity on firm performance could be explained by various mechanisms of influence including trust, social networks and discrimination. Specifically, trust and social networks enhance firm performance but are lower in ethnically diverse countries. Further, we find that the extent to which discrimination hinders firm performance is higher in more diverse countries.

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call

Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.