Does home country diversity influences the diversity performance of multinationals?

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Does home country diversity influences the diversity

performance of multinationals?

Bachelor Thesis by Mirthe Steinfort

Student number: 10335447

Program track: Business

Faculty of Economics & Business

Supervised by Mr. D.A. Waeger

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Statement of Originality

This document is written by Mirthe Steinfort, who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The faculty of Economics and Business is responsible solely for the

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Abstract

The rapid internationalization and globalization has enhanced the significance of workforce diversity. The research this thesis focuses on is the concept of diversity performance, and how the home country diversity level of organizations influences their diversity performance. More specifically we hypothesize that home country diversity positively influences the diversity

performance of organizations. Moreover, some additional variables are added to this model to test for moderation. Firm size, education level in home country and religiosity in home country are tested as interaction variable on the main relationship. Data for this research was collected through database research and company data of the Global S&P 500 list. The total final sample consists of 454 organizations, for which data is obtained for the year 2013. Diversity performance was tested as dependent variable, but no effect was found on the relationship between home country diversity and diversity performance. Also, no significant moderating effects of firm size, education level and religiosity were found.

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1. Introduction

1.1. How Google will spend $150 million this year to make its workforce more diverse

One year ago, Google started publishing its diversity statistics online, which were not flattering. As in many companies in Silicon Valley, cultural diversity in the workplace is still something of concern, revealing a workforce mostly composed of white and Asian men (Business Insider, 2015). Google posted the statistics as a way of opening up the conversation and discussion of diversity at work. Last year, Google spent $115 million on diversity initiatives, and it plans to spend $150 million this year (Business Insider, 2015). It is, for example, embedding engineers at historically Black Colleges and Universities, partnering with Hollywood to inspire girls to pursue careers in computer science, and expanding their employee unconscious bias training (Lee, 2015). With these programs, Google tries to not only attract a more culturally diverse workforce but also to change the perspective and behaviours of employees toward different backgrounds. In most Silicon Valley based organizations, women and ethnical minority groups are still

underrepresented.

While gender and ethnic inequality is one of the oldest and most common diversity issues worldwide, with increasing globalization, managing diversity is becoming more important. Rapid internationalization and globalization has enhanced the significance of workforce diversity (Shen et al., 2009) because, with increasing globalization, the workforce has become increasingly

diverse. Diversity managementacknowledges that people differ, visibly or invisibly, and embraces that diversity (Shen et al., 2009). It is, therefore, important for organizations to gain knowledge of the drivers of managing diversity and the outcomes and effects of diversity.

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In the past, considerable research has been conducted on managing diversity within organizations and how diversity has an impact on firms. Those studies have mainly focussed on the effect managing diversity has on organizational success. Managing diversity effectively could enhance organizational success by enabling the access to a changing marketplace by mirroring diverse markets (Cox & Blake, 1991). According to Härtel (2004), firms’ market shares,

efficiency, human capital, international competitiveness, and levels of innovation also depend on their abilities to effectively manage diversity within their workforces. Also, diversity policies would improve the quality of management’s decisions and provide innovative ideas and superior solutions to organizational problems (Shen et al., 2009).

A multitude of research is available on how the environment in which an organization operates has significant impact on firms. As Ioannou and Serafeim (2012) stated, organizations are embedded within broader social structures, comprising different types of institutions that exert significant influence on the corporations’ decision-making and performance. Because firms operate in different national systems, they will also experience differences in the pressure to engage in social initiatives, such as managing diversity within their organizations (Logsdon & Wood, 2002). Visser (2008), for example, found differences in the valuation of corporate social responsibility (CSR) in developed versus developing countries, and according to Maignan and Ferrel (2003), different countries value different forms of CSR and have different preferences.

With this in mind, this research argues that the home country of multinational

organizations also has an important impact on the firms that originate from that country. However, there is not much research available on the impact that home countries have on MNEs. Also, not much research is available on how diversity within a country has an effect on an organization’s diversity performance. McWilliams and Siegel (2001) mentioned that the demographics of a country could have an effect on the corporate social performance of a firm, but they did not

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investigate this further. Therefore, the focus of this study will be on the diversity within a country and how this affects the diversity performance within organizations.

1.2. Research question

In order to fill this identified gap in the literature, this study will provide more information about managing diversity and investigate how home country diversity influences the diversity performance of a firm. Therefore, the main research question is as follows: To what extent does home country diversity affect the diversity performance of a firm?

1.3 Structure

In addition to this research question, this study will also examine several variables that could be moderating this relationship. First, firm size will be studied as a potential moderator of the relationship between home country diversity and diversity performance of firms. Second, two moderators at the country level will be studied: Education level and religiosity. To provide an answer to this research question, database research will be conducted, including data on diversity performance, home country diversity, and the moderating variables.

This study will start with a literature review, which will discuss previous research. Second, the conceptual framework will be presented, giving all the hypotheses of this research. Afterward, the research design and methodology will be explained, followed by the results of the analysis. Finally, this study will end with a discussion of the research, a short conclusion, and some suggestions for future research.

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2. Literature review

In this section, existing literature related to the research problem will be addressed in order to define and explain the research topic and problem statement. First, the concept of corporate social responsibility will be explained, as diversity performance is a component of the concept of corporate social responsibility. Second, in Section 2.2, diversity in general will be explained and defined. In Section 2.3, the concept of diversity performance at firms, on which this research focuses, will be explained. Fourth, Section 2.4, will focus on why country diversity is important to consider when studying the management of diversity within organizations. Finally, a short

conclusion will be given in Section 2.5, which will emphasize the need for this research.

2.1. Corporate social responsibility

In the past decades, growing attention has been paid to organizations’ social

responsibilities, termed “corporate social responsibility”. As Ioannou and Serafeim showed, in 2001, more than 93% of all the studied CEOs worldwide declared corporate social responsibility was an extremely important factor for the future of their organizations (Ioannou & Serafeim, 2012). The time when financial return was firms’ sole and only responsibility ended long ago. In 1953, Bowen (1953) stated that large organizations are vital centres of power and decision-making and that the actions of these firms touched the lives of citizens at many points. He was one of the first researchers writing about the social responsibility of organizations toward their environments.

Bowen (1953) established an initial definition of businessmen’s social responsibility to pursue those policies, to make those decisions, or to follow those lines of action that are desirable in terms of the objectives and values of society. McWilliams and Siegel (2001) defined corporate social responsibility as actions that appear to further some social good, beyond the interests of the firm and that which is required by law. Corporate social performance is then the social outcome of a firm’s undertaking of all corporate social responsibility activities.

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Pressures to engage in corporate social responsibility emerge from all different groups, including customers, employees, suppliers, community groups, governments, and stockholders (McWilliams & Siegel, 2001). Organizations that are socially irresponsible will find their benefits diminishing by growing economic and social insecurity, shrinking markets, and the exhaustion of available raw materials (Jenkins, 2005). Thus, at the organizational level, organizations are concerned with the potential damage to their reputations that may accrue as a result of media exposure of corporate malpractice (Jenkins, 2005). As Aguilera et al. (2007) also pointed out, organizations should engage in “triple bottom line thinking” in order to maintain profitability. This theory suggests organizations should focus on economic profitability, environmental

sustainability, and social performance. As Friedman (1970) stated, corporate social responsibility is an opportunity that is the basis of economic development of firms in terms of competitive advantage in a global market.

In addition to the importance of corporate social responsibility, it is also important to understand the different dimensional aspects of corporate social responsibility. Uddin et al. (2009) classified corporate social responsibility in three aspects: Economic, environmental and

ecological, and social. Economic aspects refer to the economic impacts of an organization’s operations, for example, the impact operations have on the community and all of the

organization’s stakeholders. The environmental and ecological aspects of corporate social responsibility refer to the extent to which an organization creates a sustainable environment and acts environmentally responsible (Uddin et al., 2009). Finally, the social aspect of corporate social responsibility refers to the accountability for the social effects the company has on all people, even indirectly. Uddin et al. (2009) stated that it refers to management’s obligation to make choices and take actions that contribute to the welfare of society, as well as the organization. Diversity

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Uddin et al., 2009). As this research focuses specifically on diversity performance, in the next section, the concepts of diversity and diversity performance will be explained.

2.2. Diversity

Since much research is available on diversity in organizational settings, it is important to give a clear definition of the concept of diversity. According to Knippenberg, de Dreu, and Homan (2004), diversity refers to differences between individuals on any attribute that may lead to the perception that another person is different from oneself. As follows from this definition, diversity is a broad concept and refers to almost infinite numbers of dimensions (Knippenberg et al., 2004). Diversity implies differences in people based on their identifications with various groups

(Carnevale & Stone, 1994). Diversity is important because individuals give social significance to the categories or groups with which they associate.

During this research, different forms of diversity will be incorporated, but the focus will mainly be on workforce diversity and how diversity is treated within the organization. Workforce diversity refers to the degree to which the organizational workforce consists of people with different background characteristics. Such characteristics could refer to ethnicity, race, gender, age, and disability (Peretz, Levi, & Fried, 2015).

2.3. Managing diversity within organizations

2.3.1. Definition

Diversity within a workforce acknowledges the reality that people differ in many visible or invisible ways (Shen et al., 2009). During this study, we will refer to diversity performance as the extent to which an organization has policies to embrace diversity in that organization. Diversity performance reflects a company’s capacity to increase its workforce loyalty and productivity by promoting an effective work-life balance, a family-friendly environment, and equal opportunities

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regardless of gender, age, ethnicity, religion, or sexual orientation (ASSET4 database). Such work-life balance/diversity arrangements include temporal arrangements to reduce the number of hours employees work; flexible working arrangements; work-life balance support, such as stress management training; and childcare facilities (McCarthy, Darcy, & Grady, 2010). Greater diversity will also enhance an organization’s overall corporate social performance, as diversity management is an integrated component of the organization’s corporate social

performance/responsibility. Managing diversity within firms requires setting aside one’s own perspectives or personal filter to see others for who they are (Carnevale & Stone, 1994).

2.3.2. Relevance of managing diversity in organizations

Due to increasing internationalization and globalization, it is important for firms to embrace diversity and pay attention to the management of diversity within the workplace (Cox & Blake, 1991; Härtel, 2004). Research has shown firms benefit significantly from managing

diversity within their organizations. Firms’ market shares, efficiency, human capital, international competitiveness, and levels of innovation will depend on their abilities to effectively manage a diverse workforce within and across organizational boundaries (Härtel, 2004). Efficiency can be improved by managing diversity because workers in an environment receptive to diversity are empowered to use their full capacities and, therefore, work more efficiently (Carnevale & Stone, 1994). Cox and Blake (1991) discovered managing diversity can create competitive advantages within six areas: (1) Cost, (2) resource acquisition, (3) marketing, (4) creativity, (5) problem-solving, and (6) organizational flexibility. Research has shown that managing diversity within organizations also reduces employee turnover and stress and enhances job satisfaction and productivity (McCarthy et al., 2010). Finally, research suggests that firms may develop

competitive advantages by being perceived as attractive places of employment because of their performances regarding issues of diversity (Turben & Greening, 1997). A firm’s policy to manage

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diversity and work-life balance may influence its attractiveness as an employer because of what it signals about the firm’s working conditions (Williams & Bauer, 1994; McCarthy et al., 2010).

People naturally bring “who they are” to the workplace because culture is embedded in everything people are, do, and value (Carnevale & Stone, 1994). Therefore, different people bring different attributes to the workplace. As the workforce within organizations grows more diverse, the importance of diversity policies within organizations increases. When diversity within an organization is not managed well, there will be tension and this will have negative consequences for the organization’s performance. Carnevale and Stone (1994) pointed out a good example of the diversity within a workforce and the potential for friction. The predominant culture of most

American organizations reflects the values of American-born, white males (Carnevale & Stone, 1994). They stated, as the diversity within the workforce grows, so does the number of different cultures and values. These values of non-traditional American-born workers differ from the dominant culture in the organization, which can lead to culture clashes. In particular, minority groups within organizations are the victims of those culture clashes because they will not be heard and their values and cultures differs from the dominant culture. Not only are those minority groups affected, but also the organization as a whole will be affected; due to those frictions, productivity and performance will be negatively affected.

As the literature shows, it is important to manage diversity within the organization. Not only does managing diversity have an effect on firm performance,it is also an integral part of an organization’s social responsibility goals. As Mighty (1991) proposed, valuing diversity should be a broad organizational change effort that involves changing individuals’ attitudes and behaviours, while at the same time, changing the organization’s philosophy and culture, and consequently, its structure, policies, and procedures, resulting in greater equity for minorities and women (Mighty, 1991 as cited in Agócs & Burr, 1996). This proposal is sometimes called the “moral imperative”, i.e., doing it because it is right (Carnevale & Stone, 1994).

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2.4. Country specific differences when studying diversity performance

This paper argues that the diversity within a country, and the differences between

countries, are important to consider when studying the diversity performance of firms. Therefore, the following part of this review will discuss the importance of national differences and diversity within countries.

A multitude of research is available that says the environment in which organizations operate has significant impact on the behaviour and corporate social performance of firms. Ioannou and Serafeim (2012), for example, studied what nation-level institutions have influence on the corporate social performance of firms. Why do firms that are embedded in different nation-level institutions, but are operating in the same industry, have such differences in corporate social performance? They conducted research on differences in political systems, labour and education systems, financial systems, and cultural systems. They found, in countries where laws and regulations promote higher levels of competition, corporations scored lower on corporate social performance. Also, in countries where corruption is less widespread, organizations engaged significantly more in corporate social performance. Regarding the cultural system in which an organization operates, they found, in countries characterized by higher levels of individualism, corporations scored better on corporate social performance. Also, their results showed that

organizations embedded in countries with higher levels of power distance would also engage more in corporate social performance (Ioannou & Serafeim, 2012).

Ringov and Zollo (2007) also found evidence that national culture plays an important role in influencing how society expects businesses to behave. According to Ringov and Zollo (2007), corporations facing high levels of cultural specificity should tailor their decisions and actions to each local context. Chapple and Moon (2005) found that multinational corporations adjust their CSR activities according to the specific national contexts in which they operate. Therefore, it is

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important to know in what national context a corporation is operating, in order to formulate a good CSR strategy.

As previously discussed, because of increasing globalization, being able to handle and manage diversity within organizations is important for all organizations worldwide (Shen et al., 2009). Therefore, it is also important to understand what factors lead organizations to have better diversity performance. As the literature above shows, because firms are in different national systems, they experience differences in the degree to which they engage in social initiatives, such as managing diversity (Logsdon & Wood, 2002), and they will also have different visions on how important it is to be socially responsible (Maignan & Ralston, 2002). Because past research has shown that the corporate social performance of organizations differs among the different national systems in which they operate, this research argues that the multinationals’ home country

environment should have an important impact on the firms originating from this country.

2.5. Negative aspects of diversity performance in the workplace

In previous sections, we mentioned the importance of managing and having diversity within the organization. However, not all research highlights the benefits of having and managing diversity in the workplace. Some research studied the negative aspects of diversity performance and policies. Therefore, we will now address those studies and show the pitfalls of managing diversity within the organization.

As previously mentioned, it is important for all organizations to engage in activities to manage diversity of gender, race, age, and sexual orientations within the workplace. However, some organizations do not engage in diversity management for the good of their employees or society, but rather to increase their public image or to generate more revenue (Comer & Soliman, 1996). When organizations engage in diversity performance for the wrong reasons, diversity within the workplace will not be managed effectively and differences will not be well understood

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(Comer & Soliman, 1996). When diversity in the workplace is not well understood, it can lead to confusion, low cohesiveness, and low productivity (Adler, 1991). Although we argued earlier that preserving one’s reputation is one of the reasons why companies should engage in diversity management, it is important firms engage in diversity management for the good of their employees and society and not only for their own good.

While Comer and Soliman’s (1996) research focused on the negative motives for

organizations to engage in diversity performance, Pelled, Eisenhardt, and Xin (1999) studied the negative impact of diversity on conflict within the workplace. When members of a work group have different backgrounds, they may have different belief structures, priorities, and

understandings (Hambrick & Mason, 1984). They stated that these divergences of a diverse workgroup most often lead to intragroup task conflict. Demographic attributes, corresponding with certain belief structures, are most likely to influence this intragroup task conflict. Diversity also influences emotional conflict within the workplace (Pelled, Eisenhardt, & Xin, 1999). Individuals have the tendency to sort other individuals into social categories, which most often is based on demographic attributes. This social grouping leads to emotional conflict in the workplace because other social groups are disparaged and distanced.

2.6. Research question

The values present in countries in which organizations are headquartered exert a strong influence on the actions and behaviours of organizations. Therefore, we argue that the diversity level of the home country of an organization has an influence on the diversity performance of those organizations.

Previous studies that investigated the impact of national culture on companies have conceived of national culture as monolithic. What has not been taken into account is the fact that there is also cultural diversity within-country and how such within-country cultural diversity

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impacts firms. This aspect has not been investigated before; therefore, the current research tries to fill these gaps by attempting to find an answer to the following question: To what extent does the home country’s diversity level influence the diversity performance of a firm?

This question will be answered by examining country diversity, which this thesis will define as the percentage of migration population of the total population of a country, and its effect on the diversity performance of a firm.

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3. Conceptual framework

After having explored previous research and having explained the main concept of corporate social responsibility and diversity performance, this section will define the conceptual framework on which this research is based. First, the main relationship between home country and diversity performance will be discussed. Next, several potential moderators at firm and country levels will be explained, and the hypotheses will be formulated.

3.1. Country diversity and diversity performance

As mentioned in the literature review, this study will focus on the relationship between country diversity and the diversity performance of firms. Because there is no research available that studies the particular relationship between country diversity and corporate social performance and/or diversity performance of firms, we will first review research that studied the relationship between group diversity and the influence on corporate social performance.

Because there is research available that studied how group diversity has influence on the corporate social performance of firms, this research will be taken as an example. Hafsi and Turgut (2013) did research on how boardroom diversity had an effect on firms’ social performances. They found that board diversity had a positive influence on the firms’ social performances. They also found that women, minority, and foreign-based directors were more sensitive to the firms’ social performances (Hafsi & Turgut, 2013). Also, they found ethnically diverse boards resulted in superior corporate, as well as social, performance. Furthermore, their research indicated that groups consisting only of English people tended to be more individualistic, while ethnically diverse groups tended to be more collective in their social orientations (Hafsi & Turgut, 2013). Ioannou and Serafeim (2012) determined that nation-level institutions influence firms’ corporate social performance in different countries. They pointed out that organizations are embedded in

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on corporations’ decision-making (Ioannou & Serafeim, 2012). More specifically, evidence was found that the concern about work-life balance policies is different in various national contexts (Lewis, Gambles, & Rapoport, 2007). For example, in countries with more traditional gender values, companies were more in favour and concerned with employed mothers and work-life balance policies than in countries where it is the norm for women to be employed (Lewis, Gambles, & Rapoport, 2007).

As mentioned in the literature review, the organizations’ home country environment has an important impact on the firms that originate from that country. If the environment of the home country influences firm’s social performance (Chapple & Moon, 2005; Ioannou & Serafeim, 2012; Ringov & Zollo, 2007), a diverse environment would then also influence the performance of firms in terms of diversity. This idea leads to the first hypothesis:

Hypothesis 1: The degree of diversity at the country level will positively influence the diversity performance of companies originating from that country.

3.2. Moderating relationships

In this section, we will discuss some variables that possibly moderate the main relationship between home country diversity and the diversity performance of firms. These variables are expected to alter the strength of the relationship or change the direction or magnitude of the relationship between two variables.

3.2.1. Firm size

Previous research showed that the size of a firm has significant influence on the corporate social performance of that firm. Trotman and Bradley (1981) stated that firm size has a positive influence on the corporate social performance of firms because larger firms have greater visibility and receive higher attention from the general public (Dierkes & Coppock, 1978). These larger

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organizations see themselves as “targets” because of their dominance in the market and, therefore, make visible efforts to establish social responsibility credentials (Trotman & Bradle, 1981). Larger firms attract more attention and pressure from their stakeholders to behave in socially responsible ways (Trotman & Bradley, 1981). Furthermore, larger companies have a greater number of shareholders who are concerned with social responsibility programs (Cowen, Ferreri, & Parker, 1987). Also, larger organizations have greater levels of resources available to use for CSR activities (Brammer & Millington, 2006). According to Carrol’s (1979) responsibility pyramid, larger firms have the obligation to focus on all of their economic, legal, ethical, and philanthropic responsibilities. Smaller firms, however, should first focus on their economic responsibilities before they focus on ethical or philanthropic responsibilities. As a result, we argue that firm size moderates the relationship between country diversity and diversity performance and formulated my second hypothesis as the following:

Hypothesis 2a: Firm size moderates the relationship between home country diversity and diversity performance, such that this relationship is stronger as firm size increases.

3.2.2. Education level

The second moderator is the education level in a country. Past research has shown that countries with lower education levels are less often involved in social responsibility activities (Gugler & Shi, 2008; Teoh & Thong, 1984; Visser, 2008). We assume education level is lower in developing countries, as opposed to developed countries. In developing countries, where the education level is most often extremely low, problems of poverty and hunger still pose serious threats to national health, wealth, and safety. Therefore, organizations in developing countries might focus more on efforts to improve the material and economic welfare of the population instead of their social responsibilities to diversity (Teoh & Thong, 1984). Teoh and Thong (1984) discovered that organizations in developing countries most often see the profit motive and the

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production of goods and services as the sole and only responsibility of the firm. An example of a developing country is India, where only 11% of the organizations have a written corporate social responsibility policy (Gugler & Shi, 2008).

Some developing countries face tremendous economic growth. However, this economic growth is most often created by multinational organizations not originating in those countries. Due to the problems in those countries, there have been increasing demands on those multinational organizations to provide community development programs (Eweje, 2006). However, those social activities are mostly carried out by multinationals and not by organizations originating in

developing countries.

This thesis argues that education level moderates the relationship between home country diversity and diversity performance of firms. A positive relationship is expected between the education level in a country and the degree to which a firm engages in the management of diversity. Therefore, my third hypothesis is formulated as follows:

Hypothesis 2b: The education level in a country moderates the relationship between home country diversity and diversity performance, such that this relationship is stronger as the education level in a country increases.

3.2.3. Religiosity in a country

Considerable research has been conducted on the relationship between religion and business ethics. The third and last moderator this research will cover is the extent to which religion is important in a firm’s home country. Religion promotes social solidarity and provides norms that reduce conflict and are against antisocial conduct (Kennedy & Lawton, 1998). Therefore, religion is an important social institution that exercises control over beliefs and

behaviours (Kennedy & Lawton, 1998). Religion plays an integrative role on societies as a whole and on all the individuals within them (Huffman, 1988). Kennedy and Lawton (1998) studied how

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religion influences individual’s ethical behaviour. They stated religion proves to be an important dimension in the explanation of variation in ethical beliefs. Evidence was found for the fact that religious individuals are less willing to engage in unethical behaviour (Kennedy & Lawton, 1998).

Religion has also played a significant role in establishing moral and ethical prescriptions in business ethics (Brammer, Williams & Zinkin, 2006). Brammer, Williams, and Zinkin studied the relationship between religion and individual beliefs regarding corporate social responsibility. Evidence was found for religious-orientated individuals to exhibit a greater orientation toward corporate social responsibility activities and better decision-making in ethical contexts

(Longenecker et al., 2004). In general, religious people hold broader conceptions of the

responsibilities of companies (Brammer, Williams, & Zinkin, 2006). Also, Miesing and Preble (1985) found evidence that business managers reporting strong religious convictions tend to be more ethical in their business behaviours.

Because religious people tend to engage more in ethical behaviour, we expect them to also find the managing of diversity within the workplace more important. Therefore, this paper argues that the degree to which religion is important in the firm’s home country positively influences the relationship between diversity at the country level and diversity performance of a firm. This assumption leads to my final hypothesis:

Hypothesis 2c: Religiosity in a country moderates the relationship between home country diversity and diversity performance, such that this relationship is stronger as religiosity in a country increases.

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3.3. Conceptual model

Diversity performance Home country

diversity

Firm size Education level Religiosity

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4. Methodology and research design

In the following section, the methodology will be described and how this research was conducted will be explained. First, in Section 4.1, the research design will be described. Next, in Section 4.2, the sample characteristics will be discussed. To conclude, the process of data collection will be explained, together with the measurement of the variables.

4.1. Research design

This research has a cross-sectional design, which implies we obtained information about my research subject without manipulating the study environment. Cross-sectional analysis is a type of observational study, which is able to compare different population groups at a single point in time. For this research, we compared how diversity in the home country relates to the diversity performance of firms by sampling companies from the global Fortune 500 in the year 2013. The benefit of choosing this research design is that it allows us to compare many different variables at the same time. Also, given the limited resources and timeframe, this research design was most appropriate. A cross-sectional study is relatively inexpensive and takes little time to conduct. However, with cross-sectional studies, it is difficult to define causal relationships and to make causal inferences. A cross-sectional study only takes a snapshot of a certain moment in time, and it does not provide information on what happens before or after the snapshot. Therefore, this method may not give an accurate picture of the situation because it only shows a certain moment in time, and it does not take other moments into consideration.

4.2. Sample characteristics

Of the 500 organizations in the Global S&P 500, only 368 organizations had complete data available (N = 368). The data used for the conducted research consisted solely of secondary data,

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which was gathered from several databases.The choice of firms was dictated by the fact that we needed a good representation of all firms worldwide. The focus of this study is on diversity within countries and the effect this has on organizations’ diversity performance. Therefore, a sample that consisted of firms headquartered in a variety of countries worldwide was needed. Because the Global S&P 500 consists of organizations from 35 different countries, this list was used during this research. This list is an annual ranking of the top 500 largest organizations worldwide as measured by revenue (Global Fortune 500). The data used was from 2013 because there might not have been enough data available from 2014. Therefore, 2013 was the most recent year we were able to use.

4.3. Measures

4.3.1. Dependent variable: Diversity performance

In this research, the dependent variable is the diversity performance of firms. In order to rank the firms on the basis of their diversity performance, the Thomson Reuters ASSET4 database was used. Thomson Reuters ASSET4 is a Swiss-based company that specializes in providing objective, relevant, auditable, and systematic ESG information, which is objective and transparent information on environmental, social, and corporate governance (ESG) data (Cheng, Ioannou, & Serafeim, 2014). The database comprises ESG information from over 4000 companies and provides history up to 2002 for about 1000 companies. The data for this dependent variable was collected through the ASSET4 database and the outcomes were measured at the firm level. The database allowed us to rate and compare companies against 700 individual data points, which were combined into more than 250 key performance indicators (KPIs) (Thomson Reuters ASSET4 Database). As Figure 2 (below) shows, the ASSET4 database categorizes the corporate social performance of firms in terms of economic performance, environmental performance, social

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performance, and corporate governance. As this figure shows, the diversity performance of firms is part of the Social Performance in the ASSET4 database and consists of several data points.

Figure 2. Performance indicators ASSET4 database

4.3.2. Independent variable: Country diversity

In this research, the independent variable is home country diversity and was, therefore, measured at the country level. The variable was measured on the country level because we wanted to see how the diversity levels in a country influence the diversity performance of a firm

originating from that country. In order to gain data on country diversity, a database from the United Nations Population Division was used. This database shows the international migrant stock as a percentage of the total population of a country. Immigrant population as a percentage of the national population is a good criterion to measure the diversity level in a country because it shows the diversification of nationalities in a country.

4.3.3. Moderator variables

Also important is to explain how the moderating variables were measured. The first potential moderator, Firm size, was measured using the number of total employees a firm had,

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collected from DataStream. The education level in a country was measured using an existing database from the United Nations Development Programme (UNDP). The database listed almost 200 countries and ranked them according to how much education is available in each country. The education index is calculated from the mean years of schooling index and the expected years of schooling index (UNDP, Human development Reports, 2013). Finally, the amount to which religion is important in a home country was also measured using an existing database (Gallup Poll, global index of religiosity and atheism, 2012). Data was available for over 57 countries that

matched the Global Fortune 500 companies. Religiosity was measured by asking almost 50,000 men and woman the following question: “Irrespective of whether you attend a place of worship or not, would you say you are a religious person, not a religious person, or a convinced atheist?”

4.3.4. Control variables

To assure the accuracy of my predictions, we incorporated some control variables.

Previous research showed that firm size influences corporate social performance (McWilliams & Siegel, 2000), and therefore, firm size was incorporated as a control variable. Firm size was measured using the total number of employees an organization had. Because this variable was not distributed normally, it needed to be transformed. A log transformation was conducted, which had a normalizing effect on the variable. Previous research also argued financial performance

influences the social performance of firms (Brown & Perry, 1994). Therefore, we also

incorporated firm profitability as a control variable. Organizations profitability was measured using the Return on Assets (ROA). Because the sample consists of organizations in all different industries, it was important to also control for industry. Theory suggests the nature of a firm’s industry influences the behaviour of corporate social responsibility of firms. For example, it was argued that consumer-oriented industries have more incentive to incorporate social responsiveness since the mass market consumers have an influence over the number of sales the organization

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generates (Dierkes & Preston, 1977). The sample consisted of ten industries, for which nine dummy variables were created. As a final control variable, we also controlled for world region. Because countries are embedded in larger systems of world regions, there might be a relationship between the world region of an organization’s home country and corporate social responsibility pressures. Therefore, a dummy variable was created for the following world regions: Asia, Africa, Europe, North and Central America, South America, and Australia and Oceania.

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5. Results

The previous section discussed the design and measurements of this research. In this section, the analysis will be conducted and the results will be presented and interpreted. First, in section 5.1., the descriptive statistics are presented. A correlation analysis is conducted in 5.2., and finally, the statistical results will be revealed in section 5.3.

5.1. Descriptive statistics

5.1.1. Sample characteristics

Of those examined organizations, 28.4% originated from the United States, 12.8% from China and 12.6% originated from Japan. Referring to world region, Asia was most represented in the Global S&P 500, with 37.2% of the organizations originating from Asia. 30.6% of the organizations originate from North and Central America and 28.4% from Europe. Only 2% and 1.5% respectively are originated in South America and Australia and Oceania. The most common industry in the Global S&P 500 list is financials (20.5%), followed by Industrials (15.6%) and consumer goods (12.8%). Regarding profitability, the average Return on Assets is 4.22, with a standard deviation of 5.13. Remarkable is the difference between the minimum and maximum score for ROA (-22.64 and 24.40). Negative ROA could indicate that the organization invested a high amount of capital into its production, while at the same time receiving little income out of it.

5.1.2. Descriptive statistics

In this section the descriptive statistics are described. Table 1 below presents the descriptive statistics of the dependent and independent variable diversity performance and home country diversity and all of the three moderating variables. The control variables world region and firm industry are already presented in the sample characteristics above; therefore these variables will not be discussed in this part.

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Table 1. Descriptive statistics

Variable N Mean Std. Dev. Min. Max.

Dependent variable 368 74.08 26.92 4.96 95.02

Independent variable 454 10.29 8.63 0.10 43.45

Firm size 412 109964,24 147736,59 92 2200000

Education level 454 0.81 0.11 0.473 0.93

Religiosity 454 42.13 21.51 14.00 95.50

The descriptive statistics show that the mean score for diversity performance is 74.08. This implies that overall, on average organizations score around 75 out of 100 point for their diversity performance. The standard deviation is relatively high, which implies that the data is spread out over a large range of values. For the independent variable, home country diversity, the mean score is 10.29%. This implies that immigrant population as percentage of national population on average around 10% is. The standard deviation is 8.63%, which is high compared to a mean of 10.29%. As already explained earlier, in order to conduct a regression analysis, both the dependent and

independent variables must be normally distributed.

The first moderating variable, firm size, is measured by number of employees, and is 109.964 on average, with a standard deviation of 147.737. This large number implies that the values are spread out over a very large range of data, which the maximum and minimum also show. The minimum number of employees is 92, and the maximum is 2200000 employees. Education level was on average 0.805, which is relatively high. The lowest score for education level is 0.473, and the highest is 0.927. Religiosity showed an average score of 42.13%.

5.1.3. Testing for normality

Normality is measured by Skewness, which measures the asymmetry of the probability

distribution. Skewness should be close to zero, for a distribution to be normally distributed. For our dependent variable, Skewness is -1.347. As this shows, the dependent variable is not normal distributed and is substantial negatively skewed. A relative small group scored low on diversity

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performance and a very large group scored very high on diversity performance. Because the variable is not normal distributed, it needed to be transformed in order to reduce Skewness and increase normality. Such a transformations is common if a variable does not meet the assumption of being normally distributed. Diversity performance was substantial negatively skewed (-1,347). A reflect and inverse transformation is applied to this dependent variable (X*=1/(K-X)), which transformed Skewness to 0,256. The independent variable home country diversity was substantial positively skewed (1,103), and therefore also needed transformation. However, with transforming the independent variable with a log transformation (X*=Log10 (X)) Skewness was getting worse instead of better (-1,165). Therefore, the decision was made to use the original variable for home country diversity instead of the transformed variable.

5.2. Correlation analysis

Before we continue to test the hypothesis, the correlations are examined to investigate whether the variables are associated with each other (bivariate correlation). To measure correlation, this study uses the Pearson correlation coefficient. This Pearson correlation coefficient can vary from minus one to plus one. A correlation of zero implies there is no relationship between the two variables. Appendix A shows the correlation table for the dependent and independent variables, all the moderating variables and all of the control variables.

Table 1. Correlation table

Variable N 1 2 3 4 5 6 7

Diversity performance 368

Home country diversity 454 0.001

Firm size 412 0.033 0.130** Education level 454 0.246** 0.555** 0.150** Religiosity 454 -0.106* 0.331** 0.073 0.318** Return on Assets 455 -0.049 -0.019 -0.005 0.022 0.085 Industry code 437 0.103* 0.072 0.108* 0.143* -0.011 -0.058 World Region 453 0.086 0.549** 0.182* 0.642** 0.642** 0.042 0.168** Note. *p<.05. **p<.01

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As the table shows, home country diversity shows a positive but almost neutral correlation with diversity performance (r=0.001), which is not significant. Since this number is close to zero and not significant, we can neglect this correlation of home country diversity with diversity

performance. Firm size shows a positive correlation with diversity performance(r=0.033). However, this correlation is not found to be significant. Therefore, we cannot say that firm size influences diversity performance. Education level in home country correlates positive and significant with diversity performance (r=0.246, p<0.01). This implies that organizations

embedded in countries with a higher education level score higher on diversity performance. This correlation is in line with our expectations regarding the influence of education level. However, against expectation, religiosity correlates negatively (r=-0.106) with religiosity in a home country and this correlation is significant (p<0.05). So, organizations in countries with higher religiosity score on average low on diversity performance.

5.3. Regression analysis

In this section, the results of the regression analysis of the hypothesis are presented. First, the relationship between home country diversity and diversity performance is presented, which is tested using linear regression.

The first regression was done using only the control variables as independent variables. In the second model, home country diversity was added as independent variable. The results of both regressions are presented in table 3. In the second model, R2 is 0.187. So, with incorporating the control variables and the independent variable, R2 increased from 0.171 to 0.187, which is a slightly increase. R2 is a measure for the extent to which the dependent variable (diversity

performance) is explained by the independent variable (home country diversity). It measures how close the data are to the fitted regression line. So, diversity performance is explained for 18.7% by home country diversity. Adjusted R2 takes the number of explanatory variables into account and

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adjusts R2 for the number of different variables that are in the model. In this model, Adjusted R2 is 0.153, which is 0.34 lower than R2. For all statistical tests a significance level of 5% is used. So, if the p-value is lower than 5% we can say the relationship is significant. The relationship between home country diversity and diversity performance is found to be non-significant. While a positive relationship between these two variables was expected, a weak negative relationship was found (ß=-.172, p < 0.01). This result implies that home country diversity has a negative influence on diversity performance and therefore contradicts hypothesis 1.

Next, the results of the rest of the hypothesis are presented. Firm size, education level and religiosity were all three examined as a moderator in the relationship between home country diversity and diversity performance. The first relationship that was tested for moderation of home country diversity on diversity performance is firm size. Both home country diversity (independent variable) and firm size (interaction variable) had to be mean centered, as they are continuous variables and their interaction effect was used in a multiple regression model. A moderation effect is found when ß from the interaction term is significant. The results show that the interaction term of firm size is not significant (ß=0.024, p=0.652). So, hypothesis 2a is not supported.

Hypothesis 2b stated that the education level in a country moderates the relationship between home country diversity and diversity performance. Again, mean centered variables are created for the independent variable and the interaction variable. Results show that education level significant moderates the relationship between home country diversity and diversity performance. However, while a positive effect was proposed, the interaction term shows a negative significant moderating effect (ß=-0.251, p < 0.05). Therefore, we conclude the education level in a country has a negative and significant effect of the relationship between home country diversity and diversity performance. Therefore, hypothesis 2b is also not supported.

Finally, hypothesis 2c stated that religiosity in a country moderates the relationship between home country diversity and diversity performance. Again, mean centered variables are

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created for the independent variable and the interaction variable. Since ß is 0.014 and p>0.05 we can neglect the effect of the interaction variable.Since this number is close to zero and is not significant we can conclude the interaction term religiosity has no influence on the relationship between home country diversity and diversity performance. Thus, hypothesis 2c is not supported.

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6. Discussion

6.1. General Discussion

The purpose of this research was to examine the relationship between home country diversity and diversity performance of organizations and to answer the following main research question: To what extent does home country diversity affect the diversity performance of a firm? Previous research gave a fundamental basis to propose that home country diversity would have a positive influence on diversity performance of organizations, which resulted in one main

hypothesis (Hafsi & Turgut, 2013; Ioannou & Serafeim, 2012; Lewis, et al., 2007). In the conceptual model, it was proposed that this relationship is positively moderated by several variables: Firm size, education level, and religiosity in a country. In other words, how do these variables influence the relationship between home country diversity and diversity performance? To determine these relationships, regression analyses were performed. As a proxy for the

independent variable, home country diversity, percentage immigration of the total population was used. The dependent variable, diversity performance, was measured using indicators from the ASSET4 database. The following control variables were added to verify the results for the basic model: Return on Assets, world region, and company industry.

In the first hypothesis, it was predicted that home country diversity would positively influence the diversity performance of organizations. This expected positive relationship was based on prior research (Hafsi & Turgut, 2013; Ioannou & Serafeim, 2012; Lewis, et al., 2007), which showed a positive relationship between diversity and corporate social performance. However, the results of the analysis suggested otherwise. The first prediction that home country would positively influence diversity performance was based on previous research, but the data suggested otherwise. A significant negative relationship was found between home country

diversity and diversity performance. Therefore, organizations whose home country is more diverse scored lower on diversity performance. This result is opposite of what was proposed in the first

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hypothesis. A possible explanation for this unexpected result could be the measure for home country diversity. To measure home country diversity, percentage of immigrant population was used. In countries that experience high levels of immigration, there is often a critical public debate about such immigration. Frequently, this public debate results in demands on immigrant

populations to adapt their values and cultures to the dominant values and culture in the country of residence. Therefore, it could be that even though countries with high immigration levels have culturally diverse populations, this cultural diversity is not expressed in the public discourse and, therefore, does not leave an imprint on the organizations domiciled in those countries. Therefore, it might be beneficial for future research to operationalize “cultural diversity” via alternative measures than percentage of immigrant population.

The second hypothesis (Hypothesis 2a) predicted that firm size would positively moderate the relationship between home country diversity and diversity performance. This expected

relationship was based on several different studies (Dierkes & Coppock, 1978; Cowen, Ferreri, & Parker, 1987; Trotman & Bradley, 1981). Larger firms have greater visibility and receive higher attention from the general public and their stakeholders and would, therefore, engage more in corporate social performance than smaller firms would (Dierkes & Coppock, 1978). The empirical findings, however, do not support this hypothesis. The moderating effect of firm size on the relationship between home country diversity and diversity performance was slightly positive. However, this moderating effect was not found to be significant.

The third hypothesis (Hypothesis 2b) predicted that the education level in a firm’s home country would positively moderate the relationship between home country diversity and diversity performance. Prior academic studies suggested that, in countries where education level is low, organizations are less involved in social responsibility activities (Gugler & Shi, 2008; Teoh & Thong, 1984; Visser, 2008). The results show a significant negative moderating effect of

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possible explanation for the negative effect, instead of the proposed positive effect, is that this positive effect is only the case for corporate social performance and not for diversity performance specifically.

The fourth, and last, hypothesis (Hypothesis 2c) predicted a positive moderating effect of religiosity in a country on the relationship between home country diversity and diversity

performance. In several academic studies, evidence was found that religious people are less willing to engage in unethical behaviour (Kennedy & Lawton, 1998). Also, evidence was found that religion has played a significant role in establishing moral and ethical prescriptions in

business ethics (Brammer, Williams, & Zinkin, 2006). However, results suggested otherwise. The moderating effect of religiosity in a country on the relationship between home country diversity and diversity performance was found to be slightly positive but not significant. This outcome is surprising, given extensive literature that argues there is a strong positive relationship between religiosity and corporate social performance. A possible explanation could be that this is not the case for diversity performance because many religions define strong values and want to see everyone act according to these values. In this sense, religious people may not be tolerant of individuals holding values that are different from their own. In this sense, a religious home country may actually lead companies based in that country to be less tolerant and, therefore, to perform less well in terms of diversity performance.

6.2. Limitations and future research

As discussed earlier in this research, no support for the hypotheses was found. This could be due to various limitations in this study. Therefore, we will now address some of the limitations this study faced.

First, as previously mentioned, as a measure for home country diversity, this study used the percentage of immigrant population in a country. As explained, this measure could lead to a

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negative relationship of diversity performance. Due to the public debate that follows from having a high percentage of immigrant population in a country, it could be that this cultural diversity is not expressed in the public discourse and would, therefore, not leave an imprint on the

organizations domiciled in that country. Thus, it might be beneficial for future research to operationalize “cultural diversity” via alternative measures than percentage of immigrant population. A possible alternative measure for cultural diversity within a country could be the number of different nationalities in a country.

Furthermore, a limitation of this research is that it only uses cross-sectional data over a period of one specific year. The long-term effect and possible fluctuations of the relationship between home country diversity and diversity performance is, therefore, neglected.

Future research is still needed since there still is no real explanation as to how country diversity influences diversity performance of organizations. More research on this topic can be conducted by overcoming the limitations of study.

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Does home country diversity influences the diversity performance of multinationals?