The Interaction between Geographic Heterogeneity and Human Capital Heterogeneity

Abstract

This study argues that the interaction between geographic heterogeneity and human capital heterogeneity has an influence on the performance of US law firms. We consider two forms of geographic heterogeneity — international diversification (extent to which a firm is diversified across many countries) and domestic localization (extent to which a firm is focused on fewer states within its home country). We argue that when international diversification is high, human capital heterogeneity should have a positive influence on firm performance. In contrast, we argue that when domestic localization is high, human capital homogeneity (low heterogeneity) should have a positive influence on firm performance. Results suggest that it is important to distinguish between two forms of human capital heterogeneity: social (race and gender) and professional (schooling and tenure). Social heterogeneity is useful when international diversification is high. Professional homogeneity is useful when domestic localization is high.