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New research: Companies with LGBT-friendly policies perform better

LGBT‐friendly corporate policies enhance firm performance, according to new research from the School of Business and the University of Vaasa.
Pride flags
Pride flags. LGBT or GLBT is an initialism that stands for lesbian, gay, bisexual, and transgender.

The research conducted by Assistant Professor Jukka Sihvonen, at the School of Business, and his co-authors from the University of Vaasa - Veda Fatmy, John Kihn,and Sami Vähämaa, examined the association between LGBT‐friendly corporate policies and firm performance using data on 657 publicly traded US firms over the period 2003–2016, and found that LGBT-friendly policies may create value for the firm.

More specifically, the researchers found strong evidence that more LGBT‐friendly firms have higher profitability and higher stock market valuations.

‘Our empirical findings demonstrate that LGBT‐friendly corporate policies pay off, and the documented positive relationship between LGBT friendliness and firm performance can be considered economically significant,’ says Sihvonen.

However, the findings did indicate that the positive effect of progressive LGBT policies on profitability and market valuation was more pronounced for firms located in more liberal states, while being weaker or non‐existent for firms located in more conservative states.

Nevertheless, the researchers did find that even for firms located in more socially conservative states, the effect of LGBT friendliness on firm performance is at worst neutral, suggesting that the adoption of LBGT‐friendly policies does not generally have detrimental repercussions.

But why does LGBT friendliness influence firm performance? According to the researchers, there are various potential reasons why.

‘Previous studies have documented that LGBT‐friendly firms are associated with greater employee commitment, improved job satisfaction, increased employee productivity, and more altruistic workplace behaviour,’ says Sihvonen.

Furthermore, the researchers also express that LGBT‐friendly policies may improve competitiveness in the job market by fostering the firm’s ability to attract, recruit and retain talented employees.

Ultimately, on a broader scale, these findings can be considered to support the view that socially progressive corporate policies and diversity management is worthwhile, and should be considered across the board.

This paper was originally published in ‘Accounting and Finance’.

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