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Keywords:

  • organizational demography;
  • environments

Abstract

We conduct a firm-level, 6-year longitudinal analysis on the impact that racial diversity in human resources has on financial performance. When considering short-term performance outcomes, we predict a curvilinear relationship between diversity and performance (i.e., firm productivity). Although we find evidence of a U-shaped relationship between racial diversity and productivity, the relationship is stronger in service-oriented relative to manufacturing-oriented industries and in more stable vs. volatile environments. For longer-term profitability, we propose and find support for more of a positive linear relationship between diversity and performance (i.e., Tobin's q) than a nonlinear one. This linear effect is stronger and more positive in munificent compared to resource-scare environments. Thus, we aid in reconciling existing, often contradictory, studies by demonstrating the potential short-term vs. long-term impact of racial diversity on performance. We offer implications for future research on diversity considering the current and projected demographic landscape. Copyright © 2007 John Wiley & Sons, Ltd.