The impact of racial diversity on intermediate and long‐term performance: The moderating role of environmental context

We conduct a firm‐level, 6‐year longitudinal analysis on the impact that racial diversity in human resources has on financial performance. When considering short‐term performance outcomes, we predict a curvilinear relationship between diversity and performance (i.e., firm productivity). Although we find evidence of a U‐shaped relationship between racial diversity and productivity, the relationship is stronger in service‐oriented relative to manufacturing‐oriented industries and in more stable vs. volatile environments. For longer‐term profitability, we propose and find support for more of a positive linear relationship between diversity and performance (i.e., Tobin's q ) than a nonlinear one. This linear effect is stronger and more positive in munificent compared to resource‐scare environments. Thus, we aid in reconciling existing, often contradictory, studies by demonstrating the potential short‐term vs. long‐term impact of racial diversity on performance. We offer implications for future research on diversity considering the current and projected demographic landscape. Copyright © 2007 John Wiley & Sons, Ltd.