Does diversity damage corporate value? Measuring stock price reactions to a diversity award

Abstract

Corporate decision-makers have increasingly adopted an approach to firm governance that places share value above other concerns, including meeting the needs of employees. Decision-makers' concerns about shareholder interests may potentially impede internal commitments to implementing diversity-friendly practices and policies. This study analyses how recognition for a company's diversity efforts impacts corporate share price. We rely on data of share price fluctuation following the receipt of Fortune Magazine's ‘Best Companies for Minorities’ Award. We find that companies recognized for their diversity efforts are penalized with a significant decline in share price, though this negative effect is mediated by the ethnic composition of the company's workforce.

Keywords:

• Diversity
• markets
• United States
• share price
• event study methodology
• ethnic/racial stereotypes

Acknowledgements

Both authors contributed equally to this manuscript. For convenience, they are listed in alphabetical order.

Additional information

Notes on contributors

Alison Cook

ALISON COOK is Associate Professor in the Department of Management at the Jon M. Huntsman School of Business at Utah State University.

Christy Glass

CHRISTY GLASS is Assistant Professor of Sociology in the Department of Sociology, Social Work and Anthropology at Utah State University.