Diversity Matters/Delivers/Wins Revisited in S&P 500® Firms
30 Pages Posted: 24 May 2021 Last revised: 9 Aug 2021
Date Written: August 6, 2021
In a series of influential studies, McKinsey (2015, 2018, 2020) report a statistically significant positive relation between the industry-adjusted EBIT margin of global samples of large public firms and the racial/ethnic diversity of their executives. However, when we revisit McKinsey’s tests using recent data for US S&P 500® firms, we find statistically insignificant relations between McKinsey’s inverse normalized Herfindahl-Hirschman measures of executive racial/ethnic diversity and not only industry-adjusted EBIT margin, but also industry-adjusted sales growth, gross margin, ROA, ROE, and TSR. Our results suggest that despite the imprimatur often given to McKinsey’s (2015, 2018, 2020) studies, caution is warranted in relying on their findings to support the view that US publicly traded firms can deliver improved financial performance if they increase the racial/ethnic diversity of their executives.
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