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Do LGBT Workplace Diversity Policies Create Value for Firms?

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Abstract

We show that the U.S. anti-discriminatory laws prohibiting discrimination in the workplace based on sexual orientation and gender identity (i.e. lesbian, gay, bisexual, and transgender (LGBT) identities) spur innovation, which ultimately leads to higher firm performance. We use the Human Rights Campaign’s Corporate Equality Index (CEI) of 398 (1592 firm-year observations) U.S. firms between 2011 and 2014, and find a significantly positive relationship between CEI and firm innovation. We also find that an interacting effect of CEI and firm innovation leads to higher firm performance. We use our understanding of Rawls’ Theory of Justice and stakeholder theory to show that firms with workplace diversity policies are likely to be more innovative and perform better than those without such policies. Our results are robust to endogeneity, reverse causality and simultaneity issues. Our results will trigger debate in similar markets around the globe on the economic benefits of LGBT workplace diversity policies for firms.

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Notes

  1. The extant literature from various fields, including history, sociology, and psychology, concurs that discrimination against LGBT groups exists because of both sexual orientation and gender identity (e.g. Badgett 1995; Drydakis 2009; King and Cortina 2010; Ozeren 2014; Bonaventura and Biondo 2016).

  2. These standards include respect, elimination and prevention of discrimination, support, and taking a stand for LGBT individuals.

  3. LGBT workplace policy is measured through the Corporate Equality Index (CEI), which is published annually by Human Rights Campaign (HRC), the largest organization for LGBT rights in the U.S. This index rates the firms from 0 to 100 points with 100 as the highest score based on different sub-policies (e.g. sexual orientation non-discrimination policies, domestic partner benefits policies, workplace training and LGBT-supportive policy guidelines).

  4. A detailed discussion has been included in the research design.

  5. In 2002, the HRC (largest national LGBT civil rights organization in the USA) began conducting an annual survey to rate US firms on how they treat their LGBT employees, investors, and consumers. The HRC publishes an annual report on the Corporate Equality Index (CEI).

  6. The HRC asks the largest organizations to submit a survey for this index. However, their compliance is voluntary, and organizations can also submit responses, if not asked by HRC. The HRC CEI measure includes a comprehensive set of sexual equality and gender-identity policies and the measure is used by extant literature. However, we acknowledge that it may not be a perfect measure due to the likelihood of certain perceptions and limitations of this organization (HRC).

  7. Generally, the fixed effects (FE) technique is suggested for panel data estimation in the presence of unobserved firm fixed effects (e.g. Pathan 2009). However, this method (FE) may not be suitable for this study because it requires substantial variation in the variables to generate consistent and unbiased estimates. In our study, the variable of interest, CEI lacks substantial variations over time. Therefore, FE may provide imprecise estimation (Wooldridge 2002, p. 286). In addition, FE is not supported in a small number of firms over a limited time period, which is the case of our study (n = 398 and t = 4) (Baltagi et al. 2005, p. 13).

  8. We do not report VIF results in the interest of brevity.

  9. Lardaro (1993) suggests that multicollinearity can cause an issue if VIF exceeds 10.

  10. We further apply restriction in our sample by including only those firms which have SONDP but not GINDP, DPB, or TG and run regression analysis. Our results remain consistent.

  11. As a further robustness check, we also specify industry-adjusted PTC, and industry-adjusted sales turnover. Our results remain consistent.

  12. As a robustness measure, we use the median to form CEI_dummy. Our results remain consistent.

  13. We allow firms to be matched to multiple firms by changing the permissible difference in propensity scores to 1.0% and 0.5% in value; however, we find consistent results (untabulated).

  14. Mean difference between the treatment and the control group is based on the average treatment effect on the treated (ATT).

  15. The system GMM estimations are based on (Roodman 2006), using Stata module ‘xtabond2’. Refer to Roodman (2006) and Pathan (2009) for details on dynamic panel data estimations.

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Authors and Affiliations

  1. Department of Accounting, Finance and Economics, Griffith Business School, Nathan, QLD, 4111, Australia

    Mohammed Hossain & Lokman Mia

  2. Faculty of Business, Sohar University, Sohar, Oman

    Mohammed Hossain

  3. Essex Business School, University of Essex, Colchester, UK

    Muhammad Atif

  4. College of Business, Zayed University, Abu Dhabi, United Arab Emirates

    Ammad Ahmed

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Hossain, M., Atif, M., Ahmed, A. et al. Do LGBT Workplace Diversity Policies Create Value for Firms?. J Bus Ethics 167, 775–791 (2020). https://doi.org/10.1007/s10551-019-04158-z

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