Determinants of firm performance: does ethnic diversity matter?

Sefa Awaworyi Churchill and Maria Rebecca Valenzuela ()
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Maria Rebecca Valenzuela: Monash University

Empirical Economics, 2019, vol. 57, issue 6, No 12, 2079-2105

Abstract: 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.

Keywords: Ethnic diversity; Firm performance; Profits (search for similar items in EconPapers)
JEL-codes: J15 L25 M13 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s00181-018-1529-1

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