In a series of highly influential studies conducted by the consulting firm McKinsey spanning from 2015 to 2023, it was reported that there is a positive correlation between the diversity of executives in large public firms and their financial performance.
But while many jumped on the diversity bandwagon, Drs. Jeremiah Green and John R.M. Hand thought it wise to take a closer look under the hood. In a recently published in-depth review of McKinsey’s findings, they reanalysed the data using information from firms in the S&P 500 as of 2019. Revealingly, their analysis shows no statistically significant relationships between executive diversity and key financial metrics such as earnings, sales growth and return on equity over the preceding five years.
Moreover, they suggest that flaws in McKinsey’s methodology, potentially influenced by reverse causality, may have skewed the results. They conclude by cautioning against relying solely on McKinsey’s studies to support the idea that increasing racial and ethnic diversity among executives directly correlates with improved financial performance.
Their Econ Journal Watch article makes for fascinating reading and can be seen below:
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