Does firm diversity-enhancement program bundle matter? Firm performance dimensions, employee ownership program, and environmental technological opportunity

Abstract

Research on diversity programs provides inconclusive knowledge regarding their effect on firm performance. In this study, we build on the Ability-Motivation-Opportunity framework to examine the relationship between firm diversity-enhancement program bundle and firm performance. Based on a dataset covering 2,794 U.S. publicly listed firms over 15 years, we find support for our hypothesis that firm diversity-enhancement program bundle results in a greater pay-off when it is coupled with a stronger employee ownership program at the firm level or a greater technological opportunity at the industry level. Furthermore, the pay-off is greatest when a firm’s diversity-enhancement program bundle, its employee ownership program, and its environmental technological opportunity are all high. Overall, our study provides nuanced theoretical and empirical accounts regarding a firm’s integrated diversity-enhancement efforts. It also provides novel managerial implications regarding when firms can reap the most benefit from their integrated diversity-enhancement efforts.

Keywords:

• Ability-motivation-opportunity approach
• firm diversity-enhancement program bundle
• firm performance

Disclosure statement

The four authors do not have any conflict of interests to declare.

Data availability statement

The data that support the findings of this study are available from the corresponding author upon reasonable request.

Notes

1 Focusing on diversity programs in this study, we assume that such programs promote diversity (and diverse human resources). We thus cite studies on both diversity and diversity programs in our literature review and hypothesis development, even though the two concepts are not interchangeable. In this sense, we suggest that diversity is a “mediator” between diversity programs and firm performance, although we cannot directly test this idea in the current dataset. We also discuss this point in the study limitation section.

2 Several scholars have labeled this industry R&D intensity concept as industry product differentiation (e.g., Datta et al., 2005; Hambrick & Finkelstein, 1987).

3 The KLD data provided no observations for progressive gay and lesbian policies, a key aspect of firm diversity-enhancement program bundle, until 1995, so we treated 1995 as the starting point of the sample. Furthermore, RiskMetrics acquired the KLD Company in November 2009, and although it continues to publish KLD data, the items have changed. So we treated 2009 as the ending point of our sample.

4 One reviewer pointed out that this item is inconsistent with the remaining items in the bundle because it captures more about the actual (state) diversity than the diversity effort. We agree with this reviewer that this item is indeed different from the rest of the items. We, however, still kept this item in our operationalization bundle for three reasons. First, KLD provided this item together with other items as an integrated index of firm diversity, and we wanted to maintain the integrity of the index, which allowed us to communicate with other researchers using the same measure (Cui et al., 2005; Kabongo et al., 2013). Second, this item could not be exactly pointed to which diversity element of the CEO (e.g., it included both gender diversity and racial diversity), so it still, to some extent, captured a firm’s general intention to promote diversity. Third, a confirmatory factor analysis showed that this item loaded together with the remaining items onto the latent diversity program bundle factor. Having said that, we followed the reviewer’s comment and conducted a supplementary analysis by separating this diversity element from the remaining items. This supplementary analysis showed very similar results. We thank the reviewer for suggesting this important insight for us and the detailed results of this supplementary analysis are available upon request.

5 We thank one reviewer for this suggestion.

6 The three-way interaction effect of diversity-enhancement program bundle, firm employee ownership program, and environmental technological opportunity on labor productivity was positive but not significant, so we did not plot this result. However, one exploratory plot showed that the only condition in which diversity-enhancement program bundle positively and significantly increases labor productivity is when both firm employee ownership program and environmental technological opportunity are high. In contrast, this main effect was either negative or non-significant in the other three conditions. Therefore, this pattern was also largely consistent with our expectation.

7 One reviewer suggested that net income per employee is a better measure than labor productivity in capturing the cost of diversity-enhancement initiatives. Therefore, we conducted additional analyses using net income per employee as another outcome. The results showed two main conclusions. First, diversity-enhancement initiatives now had a negligible main impact on firm net income employees (b = −0.02, n.s.). Second, the interaction between diversity-enhancement program bundle and firm employee ownership program was marginally significant (b = 0.08, p < .10), and that between diversity-enhancement program bundle and environmental technological opportunity was significant (b = 0.54, p < .05), consistent with our expectations in Hypotheses 1 and 2. The three-way interaction was positive but insignificant (b = 0.54, n.s.).

8 We thank one reviewer for this suggestion.