Nathan, M; (2015) All in the mix? Top team demographics and business performance in English firms, 2008-9. In: Nijkamp, Peter and Poot, Jacques and Bakens, Jessie, (eds.) The Economics of Cultural Diversity. (pp. 270-296). Edward Elgar Publishing: Cheltenham, UK.

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Abstract

Researchers are increasingly exploring the effects of cultural diversity on firms’ performance. Using English survey data, I look explore links between business performance and the composition of owners, partners and directors who set firms' strategic direction. 'Top team' demography might generate externalities through diversity (a wider range of ideas/ experiences, helping problem-solving) and/or within-group 'sameness' (such as diaspora linkages to international markets). These channels may be balanced by internal downsides (lower trust) and external barriers (discrimination), so that overall effects on performance are unclear. Using a repeat cross-section of over 6,200 firms, I construct measures of diversity and sameness across ethnicity and gender 'bases'. I regress measures of product/process innovation and sales geography on top team demographics, plus controls and a series of fixed effects. My results suggest a small but robust inverse-U relationship between the share of minority ethnic top team members and business performance - especially process innovation and exports. For gender, the inverse-U also holds for product innovation. Notably, I find no significant penalties for all-minority or all-female top teams, but turn up small negative links for all-male and all-white top teams. This implies that while diversity has benefits to firms, some kinds of homogeneity carry performance penalties.

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