Strategic Change As Mediator Between Top Executives’ Racial Diversity and Firm Performance

Authors:

Keywords: racial diversity in management, flexibility in thinking and diverse perspectives, strategic change, upper echelons theory, business case for diversity

Abstract: We examine the effects of racial diversity (all racial subgroups including Whites, Asians, Blacks, Native Americans, and Hispanics) in the U.S. computer industry and in a supplemental experiment. Because diversity can both slow the intensity of strategic change and broaden the knowledge base that facilitates strategic change, we test whether racial diversity with executives within two reporting levels of the chief executive officer (hereafter referred to as top executives), positively or negatively relates to strategic change. We tested our hypotheses with a sample from the United States computer industries during the years 2007-2011, including both software and hardware sectors. We conducted a supplemental study to see if flexibility in thinking and diverse perspectives mediate the relationship between TMT racial diversity and strategic change to bolster subsequent firm performance in a serial mediation fashion. Results provide evidence that top executives’ racial diversity positively impacts strategic change and ultimately firm performance. Results support a moderated-mediation model. Top executives’ racial diversity more positively relates to strategic change in older firms than in younger firms, which ultimately affects performance. Furthermore, our supplemental experimental study reveals that flexibility in thinking and diversity of perspectives further explain the process by which TMT racial diversity impacts strategic change.