Which Diversity Measures Best Capture Public Company Value?

Prior research has shown that companies' diversity efforts lead to improved company performance and market value. However, measuring and comparing diversity is a challenge for firms since there is not a comprehensive, universally accepted method to measure firm diversity. This study evaluates three publicly available proxy measures (the Human Rights Campaign Foundation's Corporate Equality Index (CEI) ratings and Bloomberg's environmental, social, and governance (ESG) scores, and a Board of Directors gender diversity index) that report on various aspects of firm diversity to assess which are most closely associated with long-term company value using panel regression. We find that higher CEI ratings and Bloomberg's ESG scores are significantly associated with higher Tobin's q levels. A Granger causality analysis found evidence that diversity efforts at firms lead to higher future market performance, not that firms with better market performance are more likely to increase their diversity.