The relationship between women and racial minority employees/managers and financial performance

Abstract

Purpose

Diversity, equity and inclusion (DEI) have become prioritized goals of business, such as hiring more women and racial minorities. This study adds to the body of research regarding the value of diversity in organizations by examining the relationship between diversity at the workforce level and the financial performance of the organization. The empirical results of prior research have provided mixed results, finding mainly positive, but also negative, and nonsignificant relationships (Sharma et al., 2020; Vlas et al., 2022). The purpose of this study is to examine the current employment status of women and racial minorities in top US companies, then analyze if a correlation exists between a company’s profit margin and its percentage of women and racial minority employees and managers.

Design/methodology/approach

This study examined the top 200 companies in the Fortune 500 companies; these are the largest companies by revenue in the USA. Companies were ranked according to each variable (% of women employees, % of racial minority employees, % of women managers and % of racial minority managers) and then divided into equal quartiles. The mean profit margin for the top quartile was compared with the mean profit margin for the bottom quartile. T-tests were used to determine whether significant differences in profit margin exist between companies. This methodology of comparing top and bottom quartiles was developed in prior studies.

Findings

Fortune 200 companies have an average of 40% women and also 40% racial minorities in their workforce. Both women and racial minorities account for a smaller percentage of managers. Women account for 34% of managers, while racial minorities account for 29%. There is a significant positive relationship between profit margin and two of the variables. Companies with 45% or more women managers have a significantly higher profit margin than companies with the lowest percentages of women managers. Companies with 48% or more racial minority employees have a significantly higher profit margin than companies with the lowest percentages of racial minority employees. These findings are in-line with the existing body of research that has found mixed impacts of diversity on firm performance (cf. Hoobler et al., 2018; Leung et al., 2022) and draws attention to the need to consider the impact of gender and racial diversity on firms at various management levels within the firm to better understand the impact that increasing diversity has on firm performance (cf. Curado et al., 2022).

Originality/value

This paper adds to the body of knowledge by assessing the current status of women and racial minorities in top US companies and, then, analyzing if a correlation exists between a company’s profit margin and the number of women and racial minority employees and managers. Findings provide companies with further incentive to maintain DEI as a prioritized goal.

Citation

Smith, K.T. and De Leon, J.A. (2023), "The relationship between women and racial minority employees/managers and financial performance", Gender in Management, Vol. 38 No. 8, pp. 981-996. https://doi.org/10.1108/GM-09-2022-0297