Managing diversity in minority business enterprises: the impact of employee homogeneity on financial performance

Abstract

Purpose

The purpose of this paper is to investigate the impact of employee homogeneity on the financial performance of minority business enterprises (MBEs). It is widely postulated that MBEs tend to hire minorities that resemble the ethnicity of the founder(s) and that this is beneficial by helping to decrease minority unemployment rates as well as providing new opportunities to minorities that they might not otherwise receive at White-owned firms.

Design/methodology/approach

The study used hierarchical linear regression on archival data of 271 MBEs to determine if employee homogeneity will be a factor in understanding their financial performance. The authors also conducted exploratory interviews with a convenience sample of MBEs to gain insight into the concept of employee homophily.

Findings

The research uncovered that as homogeneity increases, MBE financial performance decreases, and this effect is more pronounced the longer the MBE is in business.

Research limitations/implications

The data set is cross-sectional in nature and lack the perspective and clarity of time. The paper only contains a small set of exploratory interviews. The most significant implication from the study is that a lack of diversity decreases the long-term financial viability of MBEs which is to counter mainstream arguments that speak only to the positive aspects of MBEs hiring their own.

Originality/value

The research builds on the scant literature on the impact of diversity within MBEs. It also provides guidance to MBEs by suggesting they be strategic in diversifying their employee base in order to improve performance.

Citation

Blount, I. and Smith, D. (2021), "Managing diversity in minority business enterprises: the impact of employee homogeneity on financial performance", Equality, Diversity and Inclusion, Vol. 40 No. 7, pp. 859-873. https://doi.org/10.1108/EDI-01-2019-0023