Do LGBT-supportive Corporate Policies Enhance Firm Performance?

Abstract

Prior research provides evidence that LGBT-supportive corporate policies are related to important human resources functions, such as enhanced recruitment and retention. In addition, prior research indicates that investors view the adoption of such policies positively. We examine the firm-performance mechanisms underlying favorable stock-market reactions based on an integration of perspectives from corporate social responsibility and the business case for diversity. Specifically, we estimate a hierarchical linear model (HLM) to account for the nested nature of our data (firms nested within states) and find that (1) the presence of LGBT-supportive policies is associated with higher firm value, productivity, and profitability, (2) the firm-value and profitability benefits associated with LGBT-supportive policies are larger for companies engaged in research and development (R&D) activities, and (3) the firm-value and profitability benefits of LGBT-supportive policies persist in the presence of state anti-discrimination laws. In supplemental analyses, we find that firms implementing (discontinuing) LGBT-supportive policies experience increases (decreases) in firm value, productivity, and profitability. We are among the first to link LGBT-supportive policies specifically to financial performance outcomes as well as to develop and test a multilevel model of these relationships. Our results have important implications for theory and research on LGBT issues in organizations, human resources managers, and policymakers.

Keywords: corporate social responsibility, diversity, firm performance, resource based view, LGBT

JEL Classification: J24, J71, M12, M14, M51