A DEI Study on Linkages between diversity and financial firm performance

With DEI data provided by Denominator, a new research project investigates the relationships between diversity and firm performance for a people-dependent, Professional Services, and product-dependent, Energy Services, sector.

The introduction indicated an inequality of gender-diversity and partially opposing characteristics of the sectors as a point of motivation for the study to take place. By performing a regression analysis, this paper investigates the relationships between diversity metrics, such as the proportion of women in board and executive leadership positions, and financial firm performance metrics, such as Return-on-Assets and Return-on-Sales.

The study is based on the following research question:

”Is there a relationship between gender-diversity and firm performance, and to what extent is it significant for people- and product-dependent sectors? And if so, can additional knowledge benefit the discussion of prior studies and establish a causation?”

Moreover, it investigates the following hypotheses:

  • Hypothesis 1: Executives Gender Score has a positive relationship with firm performance in the Professional Services sector.
  • Hypothesis 2: Board Gender Score has a positive relationship with firm performance in the Professional Services sector.
  • Hypothesis 3: Executives Gender Score has no relationship with firm performance in the Energy Services sector.
  • Hypothesis 4: Board Gender Score has no relationship with firm performance in the Energy Services sector.

The findings indicate a negative correlation between the Leadership Gender Scores (Executives and Board) with financial firm performance in the Professional Services sector, while the results for the Energy Services sector suggest a positive link for Executive Gender Score but a negative relationship with Board Gender Score. Consequently, the authors were able to reject the hypotheses favouring positive relationships for the Professional Services sector and reject the hypotheses favouring no relationships for the Energy Services sector. Following the analysis, the authors were then able to establish a foundation for a discussion to take place. Within the areas of knowledge pertaining to Management Studies and Organisational Behaviour, several insights assisted the authors in establishing the drivers and barriers for these relationships to take place.

Furthermore, several implications were established for firms within the industries pertaining to the people-dependent and product-dependent sectors. The discussion and study concluded that the Professional Services sector had less dependencies on capital requirements and physical assets to generate profits, and an insignificant benefit from gender-diversity. For the Energy Services sector, it was found that it had greater dependencies on capital requirements and physical assets to generate profits, and an equally insignificant ability to benefit from gender-diversity.

Finally, several recommendations and implications were stated which generally benefited the Professional Services sector over the Energy Services sector for short-term growth and long-term survivability through the ability to foster and harvest the benefits of diversity.

If you have any questions to the study, please contact the authors Julia Anna Marcinowicz, Benjamin Meilhac, and Lovis Hanna Olbertz from Copenhagen Business School.

At Denominator, we believe it is important with this kind of research, as we need more knowledge of how DEI performance is linked to other aspects of firms’ performance. If you are interested in using Denominator’s data for academic research purposes, please contact info@denominator.one to hear more about opportunities for collaboration.