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Empirical Economics

, Volume 57, Issue 6, pp 2079–2105 | Cite as

Determinants of firm performance: does ethnic diversity matter?

  • Sefa Awaworyi ChurchillEmail author
  • Maria Rebecca Valenzuela
Article

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 

JEL Classification

J15 M13 L25 

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.School of Economics, Finance and MarketingRMIT UniversityMelbourneAustralia
  2. 2.Department of EconomicsMonash UniversityCaulfield EastAustralia

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