Diversity and Performance in Entrepreneurial Teams

74 Pages Posted: 21 Aug 2021 Last revised: 8 Mar 2024

See all articles by Sophie Calder-Wang

Sophie Calder-Wang

University of Pennsylvania - The Wharton School

Paul A. Gompers

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Kanyuan (Kevin) Huang

Chinese University of Hong Kong, Shenzhen

Multiple version iconThere are 2 versions of this paper

Date Written: March 6, 2024

Abstract

We study how diversity affects the performance of entrepreneurial teams. In a business course to build start-ups, we find that homophily among demographic and personal characteristics plays a significant role in team formation. Next, leveraging a cohort of students where team memberships are randomly assigned, we find racial and ethnic diversity significantly degrades performance. Yet, such negative performance effect becomes mitigated when teams are formed voluntarily, suggesting an important role played by selection on unobservables. Our findings are consistent with a model where the costs of cross-racial/ethnic collaboration outweighs the complementarity benefits of demographic diversity. These findings also suggest that policy interventions to improve diversity should consider the process by which teams are formed to avoid compromising on output.

Keywords: Diversity, Gender, Minorities, Entrepreneurship

JEL Classification: J1, J15, J16, M12, M13, M14

Suggested Citation

Calder-Wang, Sophie and Gompers, Paul A. and Huang, Kanyuan, Diversity and Performance in Entrepreneurial Teams (March 6, 2024). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper , Available at SSRN: https://ssrn.com/abstract=3908020 or http://dx.doi.org/10.2139/ssrn.3908020

Sophie Calder-Wang (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Paul A. Gompers

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6297 (Phone)
617-496-8443 (Fax)

Harvard University - Entrepreneurial Management Unit ( email )

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Kanyuan Huang

Chinese University of Hong Kong, Shenzhen ( email )

2001 Longxiang Boulevard, Longgang District
Shenzhen, 518172

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