Impact of Diversity and Inclusion on Firm Performance: Moderating Role of Institutional Ownership

Author:

Saha Rubel1,Kabir Md Nurul1,Hossain Syed Asif1ORCID,Rabby Sheikh Mohammad1ORCID

Affiliation:

1. School of Business and Economics, North South University, Dhaka 1229, Bangladesh

Abstract

We investigate the impact of diversity and inclusion (D&I) on firm performance for the period 2017–2021. While the existing literature examines the relationship between diversity and firm performance, little is known about the combined effects of D&I on firm performance. This study aims to utilize the most widely used data source, the Global Diversity and Inclusion (D&I) Index, provided by the LSEG workspace. Using 8089 firm-year observations from a sample of globally listed firms and an OLS regression model, we find that firms with a higher D&I score have better firm performance, as measured by Tobin’s Q. Our moderating analysis shows that the impact of D&I on firm performance is more pronounced for firms with higher institutional ownership. We also split institutional ownership into domestic and foreign institutional ownership and show that the influence of D&I on firm performance differs between domestic and foreign institutional ownership. Our result is robust when we use an alternative proxy for firm performance and consider the findings without US firms in the sample. The overall findings indicate that considering a diverse and inclusive workforce is worthwhile for key stakeholders when making policy decisions.

Publisher

MDPI AG

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