Racial Diversity Exposure and Firm Responses Following the Murder of George Floyd
Journal of Accounting Research, Forthcoming
80 Pages Posted: 20 Mar 2023
Date Written: March 13, 2023
George Floyd’s murder caused many firms to reveal how exposed they are to racial diversity issues. We examine investor and firm behaviors after this socially significant event to provide evidence on the valuation effects of the exposure and ensuing corporate responses. We develop a text-based measure of a firm’s exposure to racial diversity issues from conference call transcripts and find that, after the murder of George Floyd, firms with diversity exposure experience a stock price decrease of approximately 0.7% around the date of the conference call. We provide evidence that this effect is attributable to race-related exposure and not gender-related exposure. Initiatives taken by firms mitigate the negative market reaction. We document that firms with racial diversity exposure respond by appointing Black directors. The stock market views appointments of Black directors more favorably after George Floyd’s murder, except when they are perceived as symbolic. We also find that firms with greater exposure to racial diversity are more likely to establish DEI departments, appoint DEI leaders, specify diversity goals, increase supply chain diversity, and donate to racial justice causes. Our paper provides evidence that exposure to racial diversity issues adversely affects firm value, and companies address the exposure by taking actions.
Keywords: racial diversity, textual analysis, valuation effects, board of directors, corporate actions
JEL Classification: G14, G34, J15, M14, M40
Suggested Citation: Suggested Citation