Ethnic diversity and firm performance: Evidence from India

We examine if the financial performance of firms in India depends on the level of ethnic diversity in
the state or district in which they operate. Thus, using data on 1,199 listed firms in the materials,
industrial and information technology sectors in India, we examine the impact of ethnic diversity on
various measures of firm financial performance. Based on indices of fractionalization calculated for 15
states and 74 districts in which these firms operate, we find evidence of negative effects of ethnic
diversity on firm performance. These results are robust to endogeneity and alternative ways of
measuring diversity.