Do Investors Value Workforce Ethnic Diversity?

Abstract: Do investors value workforce ethnic diversity in organizations? On the one hand, workforce ethnic diversity might not be valued by investors – or might be valued negatively – because ethnic diversity is often perceived as relatively controversial and/or politically polarizing compared to gender diversity, potentially leading investors to believe that the costs of workforce ethnic diversity (in terms of increased conflict or workplace tension) are especially high. On the other hand, recent evidence suggests that investors value workforce gender diversity (Daniels et al. 2025) because they believe that its costs (e.g., increased conflict) are outweighed by its benefits (e.g., increased creativity, reduced exposure to legal risk, increased ethicality), and investors might value workforce ethnic diversity for similar reasons.

Here, we present plausibly causal field evidence (Study 1) and causal experimental evidence (Studies 2/3) supporting the latter view – i.e., investors believe that workforce ethnic diversity can be valuable, with 1 percentage point additional workforce ethnic diversity valued at approximately USD 224 million in Study 1.

More specifically, in Study 1, a quasi-experimental field study, we analyze stock price reactions to initial diversity reports released by major U.S. technology firms which revealed those firms’ levels of workforce ethnic diversity, using an “event study” approach (n=3,351 firm-days). We find that firms experience more positive stock price reactions when they reveal having relatively higher (versus lower) workforce ethnic diversity numbers. Specifically, initial diversity reports revealing 1 percentage point more ethnic diversity trigger stock market valuation gains of approximately 0.14 percentage points, corresponding to a stock market valuation increase of approximately USD 224 million for the average firm in our sample (p=0.0002). This finding holds controlling for workforce gender diversity, which itself also triggers more positive stock price reactions (replicating Daniels et al. 2025), suggesting that workforce ethnic diversity and workforce gender diversity are both independently valued by investors. In placebo tests, as expected, we find no significant “effects” of initial diversity reports BEFORE they were released, which should boost confidence in our quasi-experimental causal inference approach.

In Study 2 and Study 3, we corroborate the plausibly causal field evidence from Study 1 by again finding positive investor reactions to workforce ethnic diversity, using two randomized experiments involving U.S.-based investors (i.e., Prolific participants with investing experience).

In Study 2, we randomly assigned 805 investors to one of four experimental conditions in a 2×2 design: [above-average vs. below-average gender diversity] × [above-average vs. below-average ethnic diversity]. Participants read that several companies in the S&P 500 had published press releases announcing that they had “[more vs. fewer] women employed than the average company in the S&P 500” and “[more vs. fewer] non-White people employed than the average company in the S&P 500.” (We explained that Gamma Corporation is a pseudonym for a real company.) Afterwards, participants answered the primary DV: “What do you think happened to Gamma Corporation’s stock price after it released this new information?” with two response options: “Gamma Corporation’s stock price INCREASED” or “Gamma Corporation's stock price DECREASED.” After this primary DV, participants completed two comprehension check items asking them to recall the specific diversity information they had just read in their experimental condition (one for gender diversity, one for ethnic diversity). As preregistered, we only analyzed data from participants who passed both comprehension checks (n=649). We found a positive investor reaction to workforce ethnic diversity (p=0.002) as well as workforce gender diversity (p<0.001), with no significant interaction effect between workforce ethnic diversity and workforce gender diversity. These experimental findings corroborate the quasi-experimental field findings from Study 1.

Study 3 (n=802) was similar to Study 2, with three changes. First, we added a second DV that was an incentive-compatible investment/bet; specifically, after participants completed the primary DV where they predicted what happened to Gamma Corporation’s stock price after it released diversity information, participants decided how much of a USD 1.00 bonus to invest/bet on their prediction being correct. Any amount invested was doubled if their prediction was correct, or was forfeited if their prediction was incorrect. Second, we measured six potential psychological mediators to test which intuitions/beliefs might underpin investors’ reactions to workforce ethnic diversity. The six potential mediators – increased creativity, reduced exposure to legal risk, increased ethicality, ability stereotypes, task conflict, and relationship conflict – were adapted from Daniels et al. 2025 (pp. 2-3). Third, while in Study 2 we used comprehension checks, in Study 3 we instead used comprehension gates that prevented participants from proceeding unless they answered the comprehension gate questions correctly. Regarding our primary DV (investors’ predictions), we found a positive investor reaction to workforce ethnic diversity (p=0.001) as well as workforce gender diversity (p<0.001), with no significant interaction effect between workforce ethnic diversity and workforce gender diversity. These experimental findings replicate the experimental findings in Study 2 and corroborate the quasi-experimental field findings from Study 1. Regarding our secondary DV (the amount of money investors bet on their predictions being correct), we found that investors’ mean bet was 53% of their USD 1.00 endowment (an amount of money that was significantly greater than zero; p<0.001), suggesting that investors were reasonably confident in their predictions being correct. We then tested parallel/simultaneous mediation models to assess which of the six potential mediators might be underpinning the effect of workforce ethnic diversity (or workforce gender diversity) on our primary DV, which was participants’ predictions about what happened to Gamma Corporation’s stock price after releasing diversity information. We found that both the effect of workforce ethnic diversity and the effect of workforce gender diversity seem to be underpinned by the first four mediators (increased creativity, reduced exposure to legal risk, increased ethicality, and ability stereotypes), but not by the last two mediators (task conflict and relationship conflict), with investors seeming to believe that the first four mediators all reflect ways in which more diversity would be beneficial for firm performance in terms of increased stock market valuation.

In sum, contrary to suggestions that workforce ethnic diversity is too controversial, politically polarizing, and/or conflict-triggering to be evaluated as beneficial for the firm, investors strongly and positively value workforce ethnic diversity.

Keywords: organizations; diversity; ethnic diversity; field research; task conflict; relationship conflict; creativity; ethicality