Do Gay-friendly Corporate Policies Boost Firm Performance

Do Gay-friendly Corporate Policies Enhance Firm Performance?
Janell L. Blazovich
University of St. Thomas

Kirsten A. Cook
*

University of Arizona
kacook@email.arizona.edu
(254) 722-5601

Janet M. Huston
University of South Florida

William R. Strawser
University of Colorado Denver

April 29, 2013

Abstract
Prior research provides evidence that gay-friendly corporate policies (e.g., inclusion in anti-
discrimination provisions, extension of benefits to same-sex domestic partners, etc.) improve
employee recruitment and retention, make gay employees feel more welcome and accepted in the
workplace, and enhance consumer perception. In addition, investors view the adoption of such
policies positively. In this study, we examine the firm-performance mechanisms underlying this
favorable stock-market reaction. Specifically, we find that (1) the presence of gay-friendly
policies is associated with higher firm value and productivity, (2) firms implementing
(discontinuing) these policies experience increases (decreases) in firm value, productivity, and
profitability, and (3) the firm-value and profitability benefits associated with gay-friendly
policies are larger for companies with demand for highly skilled labor. These results are robust to
various methods of addressing endogeneity.

Keywords
corporate social responsibility, diversity, gay, firm performance

JEL Classifications
J24, J71, M12, M14, M51

Acknowledgements
We thank Curtis Hall, Ryan Huston, Mary Malina, Sarah Shaikh, Brian Shapiro, and workshop
participants at the University of South Florida and the University of St. Thomas for helpful
comments.

*Corresponding author

1

Do Gay-friendly Corporate Policies Enhance Firm Performance?

1. Introduction
Since its inception in the 1950s, the definition and scope of corporate social responsibility
(CSR) have evolved over time, reflecting the shifting beliefs of what society views as good or
responsible behavior (Carroll 1999). Howard Bowen, a pioneer of social responsibility theory,
described CSR as a reference to the obligations of businessmen to pursue those policies, to
make those decisions, or to follow those lines of actions which are desirable in terms of the
objectives and values of society (Bowen 1953: 6). It follows that CSR is largely dictated by
societys current objectives and values. Because CSR lacks a static theoretical construct,
researchers have conducted a wide range of work across a breadth of disciplines. We extend one
such stream of work in the CSR literature by examining the role of the corporation in providing
its employee stakeholders with equitable benefits. In particular, we examine whether gay-
friendly corporate policies (e.g., inclusion in anti-discrimination provisions, extension of benefits
to same-sex domestic partners, etc.) enhance firm financial performance.
In 1974, IBM was the first publically traded US firm to formally include gay employees
in its corporate anti-discrimination policy (Dunlap 1996). Although the adoption of a sexual-
orientation anti-discrimination policy was novel in 1974, the number of companies with gay-
friendly policies has increased every year (Lewis and Pitts 2011). In our sample, less than 5
percent of companies had gay-friendly policies in 1996; however, by 2009, more than 20 percent
of sample firms had such rules. As more firms implement gay-friendly policies, a companys
decision to not adopt such rules may send a negative signal to potential employees. In fact, the
majority of Fortune 500 companies acknowledge that failing to provide gay-friendly policies
2

may place them at a competitive disadvantage with respect to employee recruitment and
retention (Gedro 2007).
Moreover, corporate stances on CSR issues may have external repercussions in addition
to those internal to the firm. For example, Dhaliwal, Li, Tsang, and Yang (2011) provide
evidence that, among firms with superior social performance, the initiation of CSR reporting is
associated with a reduction in the cost of equity capital and increases in institutional investment
and analyst coverage. Cho, Lee, and Pfeiffer Jr (2013) find that CSR benefits investors by
reducing information asymmetry. If financial statement users scrutinize firms CSR policies,
companies may work to improve social performance to enhance investors and creditors
perceptions and ward off potential criticisms. In some cases, shareholders who exert significant
power, such as institutional owners, have prodded companies into reforming certain CSR
measures (Waddock 2000).
1
While firms may be inclined to adopt gay-friendly policies in the
future as societal views shift toward a more tolerant stance of homosexuality, it remains an
empirical question whether such policies enhance or impair financial performance.
Most studies supporting a positive relation between gay-friendly policies and firm
performance use employee-level survey data to substantiate their contentions (Clermont 2006;
Colgan, Creegan, McKearney, and Wright 2007; Ragins, Singh, and Cornwell 2007; Day and
Greene 2008; Cordes 2012). In contrast, Johnston and Malina (2008), Wang and Schwarz
(2010), and Li and Nagar (2013) examine company-level data to determine whether gay-friendly
initiatives benefit firms, and each of these studies documents at least some support for the
hypothesized positive association between these policies and firm performance. However, these
studies rely on stock market returns data to provide evidence of this positive association (with

1
For example, the New York City Pension Funds successfully lobbied KBR, Inc., one of the largest contractors to
the US Defense Department, to adopt an anti-discrimination policy based on sexual orientation and gender identity.
3

the exception of Li and Nagar (2013), who also examine changes in profitability, as measured by
return on assets, surrounding adoptions of same-sex domestic-partner benefits) and call for
additional research examining the fundamental performance improvements yielding their results.
Johnston and Malina (2008: 622) write, The business case for GLBT-friendly policies relies on
the chain of causally linked phenomena starting with an affirming and safe workplace and ending
with improved financial performance... We analyze only the first and last links in the chain.
Clearly, for theory to advance in this area, we need evidence of the internal links in this chain of
reasoning. Similarly, Wang and Schwarz (2010: 213) write, Although our results provide
support for the positive relationship between GLBT nondiscrimination programs and company
performance, we have little understanding of how GLBT diversity management translates into
positive stock market reaction. A more extensive study is needed to examine the intermediate
processes by which GLBT nondiscrimination programs drive companies financial outcomes.
Our study addresses these calls for additional research and extends this stream of literature by
examining four measures of operational performance to document the potential underlying
mechanisms through which firms may have earned the superior returns found in the prior three
studies.
Our study operationalizes its gay-friendly policy variable from the Morgan Stanley
Capital International (MSCI) Environmental, Social, and Governance (ESG) Statistical Tool for
Analyzing Trends (STATS) database.
2
Using a sample of 4,619 firm-year observations from
1996 to 2009 with complete data from the MSCI ESG STATS, Compustat Fundamentals
Annual, RiskMetrics Governance and Directors, and Compustat Execucomp Annual
Compensation databases, we find a positive association between gay-friendly corporate policies
and performance outcomes. Specifically, when we regress the levels of firm value, productivity,

2
MSCI was formerly known as Kinder, Lyndenberg, and Domini (KLD) Research & Analytics.
4

and profitability on the presence or absence of gay-friendly corporate policies, we find that the
presence of such policies is associated with higher firm value and productivity. When we regress
the changes in our outcome variables from year t-1 to year t on the implementation, continuation,
or discontinuation of gay-friendly corporate policies in year t, we provide evidence that firms
implementing (discontinuing) these policies experience increases (decreases) in firm value,
productivity, and profitability. The firm value and profitability benefits associated with gay-
friendly policies are larger for companies with demand for highly skilled labor. To address
potential endogeneity (i.e., implementing gay-friendly corporate policies may result in enhanced
firm value, productivity, and profitability, or better performing firms may be more likely to
implement such policies), we conduct three supplemental analyses: treatment-effects modeling,
propensity-score matching, and causality tests based on temporal precedence. Our primary
results are robust to these alternate empirical methods. We also examine the interaction of state
anti-discrimination laws and gay-friendly corporate policies and find that firm-level policies do
not enhance productivity in the presence of state-level laws.
The results of our study should be of interest to firms directors and executives, as we
document financial performance benefits that accrue to companies with gay-friendly policies.
Because fiscal demonstrations may motivate companies questioning the expansion of diversity
initiatives (Fassinger 2008), and few such demonstrations exist (Metcalf and Rolfe 2011), our
findings may also be of interest to lobbying groups such as the Human Rights Campaign (HRC)
supporting the adoption and expansion of gay-friendly policies in the workplace. Finally, our
findings extend the academic literature studying the association of company-level performance
indicators and gay-friendly policies. We present evidence of increased operational performance
(firm value, productivity, and profitability) concurrent with and subsequent to the adoption of
5

gay-friendly policies. Because most of the prior, company-level evidence concerning the positive
association between gay-friendly initiatives and financial performance is restricted to market
data, our analysis enriches our understanding by providing evidence of the underlying
mechanisms through which firms may earn the superior returns documented by Johnston and
Malina (2008), Wang and Schwarz (2010), and Li and Nagar (2013). Although companies may
legally discriminate against gay employees in 29 states (NationalGayandLesbianTaskForce
2012), our results indicate that doing so is financially detrimental.
The paper proceeds as follows. The next section summarizes prior literature and develops
our hypotheses. Then we describe our sample selection, present our empirical methods, and
discuss our results. The final section concludes.
2. Prior research and development of hypotheses

Numerous studies document a positive association between CSR and firm performance
(Waddock and Graves 1997; Rushton 2002; Chung, Eneroth, and Schneeweis 2003; Blazovich
and Smith 2011), suggesting that some aspect(s) of CSR provide(s) real benefits to firm
stakeholders. To determine which specific components of CSR positively influence the bottom
line, academics have examined the relations between individual components of CSR and firm
performance. Findings suggest that firm performance is positively related to several components
of CSR including environmental reputation (Clarkson, Li, and Richardson 2004), the
implementation of labor-friendly policies (Faleye and Trahan 2011), and employee satisfaction
(Edmans 2011). In this study, we examine the relation between the existence and adoption of
gay-friendly policies, an additional and potentially contentious component of CSR, and firm
performance.
6

As gay-friendly policies represent a subset of diversity-enhancing policies (and diversity-
enhancing policies complement labor-friendly policies), our study builds on theories advanced
by two recent studies of employee satisfaction. First, Faleye and Trahan (2011) cite stakeholder
theory (Freeman 1984; Donaldson and Preston 1995; Jensen 2001), which contends that
managers maximize firm value by aligning the interests of employees (as well as other
stakeholders) with those of shareholders. Second, Edmans (2011) cites human relations theory
(Maslow 1943; Hertzberg 1959; McGregor 1960), which contends that employees are uniquely
valuable assets rather than expendable commodities and that employee satisfaction improves
retention and motivation, thereby enhancing firm value. We espouse similar arguments and thus
rely on the theoretical foundation laid by Faleye and Trahan (2011) and Edmans (2011) but
develop ours hypotheses specifically with regard to gay employees.
We are not the first to suggest that implementing and maintaining gay-friendly firm
policies represent socially responsible corporate actions. MSCI ESG STATS represents the gold
standard of CSR databases (Chatterji, Levine, and Toffel 2009; Wood 2010) and tracks
numerous dimensions of CSR, including gay-friendly corporate policies. Moreover, prior
academic research contends that commitment to diversity and inclusiveness is an important
aspect of CSR (Snider, Hill, and Martin 2003; Colgan 2011). Additionally, many companies
annual CSR reports include diversity commitment statements (e.g., Comcast-NBCUniversal,
PricewaterhouseCoopers, Raytheon, and Starbucks).
Using MSCI ESG STATS data, Faleye and Trahan (2011) find labor-friendly policies
(such as fair treatment of unionized employees and cash profit-sharing programs) are associated
with higher productivity and firm value. Gay-friendly policies (such as anti-discrimination
policies and the extension of employee benefits to domestic partners) are a subset of diversity-
7

enhancing policies (other such policies include employment of a minority CEO and innovative
hiring programs for the disabled) that may or may not be associated with better firm performance
when isolated from other labor-friendly and diversity-enhancing policies. Prior theoretical
research suggests that corporations with gay-friendly policies receive several performance
enhancing benefits: better employee recruitment (Metcalf and Rolfe 2011), lower employee
turnover (Metcalf and Rolfe 2011), a less stressful work environment that allows employees to
be openly gay (Ellis and Riggle 1996; Ragins and Cornwell 2001; Ragins et al. 2007), and an
expansion of the companys customer base by attracting gay consumers (Metcalf and Rolfe
2011; Paul, McElroy, and Leatherberry 2011).
Employee recruitment
Gay-friendly policies provide companies with a competitive advantage, allowing firms to
attract the best and the brightest employees regardless of sexual orientation (Clermont 2006;
Day and Greene 2008; Cordes 2012).
3
Firms that lack such policies may limit their ability to
recruit gay employees, especially given the increasing trend to provide equal benefits to
employees regardless of sexual orientation. Gay employees are estimated to comprise between 3
and 15 percent of the workforce (Griffith and Hebl 2002; Tejeda 2006; Ragins et al. 2007; Day
and Greene 2008; Johnston and Malina 2008; Cordes 2012), underscoring the folly in alienating
homosexuals from potential employee pools.
Cordes (2012) contends that creating inclusive work environments through the adoption
of gay-friendly policies helps establish companies as employers of choice for all employees,

3
Recently, 100 American companies filed an amicus (friend of the court) brief with the US Supreme Court
against Californias Proposition 8: There is a very strong business case for recognizing the rights of same-sex
couples to marry. By singling out same-sex couples for unequal treatment, laws like Proposition 8 can impede
business efforts to recruit, hire, and retain the best workers in an environment that enables them to perform at their
best Proposition 8 also interposes an obstacle to recruiting and retaining the best and the brightest when those
potential recruits or employees are members of a same-sex couple. In the brief, the companies arguments against
an anti-gay state policy are consistent with arguments from prior research in favor of gay-friendly corporate policies.
8

not just gay employees. In a recent poll by Harris Interactive/Witeck-Combs Communications, a
Gay Lesbian Bisexual Transgender (GLBT) market research leader, 6 percent of heterosexual
respondents indicated the availability of domestic-partner benefits is the most important factor
when considering a new job (Badgett 2006).
4
The fact that heterosexual employees embrace the
adoption of gay-friendly policies may reflect the growing frequency of companies adopting these
policies (Lewis and Pitts 2011) and/or the broader societal shift toward acceptance of and
demand for equality for gay men and women, which may in turn suggest that the establishment
of gay-friendly policies is becoming an important issue within the CSR framework. Badgett
(2006) suggests employees view companies with gay-friendly policies as more open and
progressive, characteristics considered favorable by workers regardless of sexual orientation.
Employee turnover
To create the most productive labor force, firms strive to retain skilled employees as
vigorously as they attempt to recruit them. Turnover results in both higher costs (Tziner and
Birati 1996; O'Connell and Kung 2007; Bliss 2012) and lower firm performance (Harter,
Schmidt, and Hayes 2002; Huselid 1995). Therefore, like recruitment, the retention of high-
quality employees helps drive positive long-run firm performance. Creating a work environment
committed to diversity improves employee job satisfaction among both homosexual and
heterosexual employees (Day and Schoenrade 1997, 2000; Day and Greene 2008), and employee
satisfaction, in turn, is positively associated with employee productivity and company
profitability (Harter et al. 2002; Edmans 2011).
Irrespective of the influence on heterosexual employees, formal anti-discrimination
policies curb workplace discrimination and result in higher satisfaction and company

4
Heterosexual employees may also value domestic-partner benefits if they are in long-term committed relationships
but not married.
9

involvement for gay employees (Day and Schoenrade 1997; Button 2001; Badgett 2006; Tejeda
2006; Colgan et al. 2007). Happy, satisfied employees are more likely to perform better,
enhancing organizational-level efficiency (Ostroff 1992), and are less likely to quit (Harter et al.
2002). Hence, establishing gay-friendly policies is one way to improve gay employee retention.
Employee likelihood of being openly gay in the workplace

Gay employees often conceal their sexual orientation at work because they fear the
repercussions of discrimination should they be forthcoming about their sexuality (Croteau 1996;
Day and Schoenrade 1997; Ragins and Cornwell 2001; Ragins et al. 2007). In fact, up to two-
thirds of gay employees report an experience of workplace discrimination due to their sexuality,
ranging from workplace isolation, intimidation or, in the worst case, job termination (Croteau
1996; Day and Schoenrade 1997). Acts of discrimination in the workplace lead to avoidable
stress because such stress is unrelated to the fundamentals of job performance and thus creates a
negative externality on employee productivity (Colgan et al. 2007; Pascoe and Richman 2009).
Accordingly, the efficiency of firm operations is hampered.
Conversely, firms that adopt anti-discrimination policies identifying gay and lesbian
employees as a protected minority tend to have more employees who are openly gay at work
(Ellis and Riggle 1996). Being openly gay is associated with lower stress levels (Day and
Schoenrade 1997; Metcalf and Rolfe 2011), decreased anxiety (Ragins et al. 2007; Day and
Greene 2008), less cognitive and emotional conflict between work life and personal life (Day
and Schoenrade 1997, 2000; Badgett 2006), and increased work satisfaction (Ellis and Riggle
1996; Day and Schoenrade 1997, 2000; Tejeda 2006; Colgan et al. 2007; Day and Greene 2008).
These personal benefits afforded to openly gay employees are associated with higher customer
satisfaction (Harter et al. 2002; Yee, Yeung, and Cheng 2008) and worker productivity (Harter et
10

al. 2002; Metcalf and Rolfe 2011), which we predict translate into superior company
performance.
Intuitively, employees are more likely to be openly gay if they work in a culture that is
accepting and tolerant (Griffith and Hebl 2002). Being openly gay allows employees to drop
efforts of subterfuge and be themselves, liberating their faculties and improving their ability to
focus, which other studies suggest translates into productivity gains and better company
performance (Melymuka 2001; Clermont 2006; Day and Greene 2008).
5
Surprisingly, despite
positing such a positive association, none of these studies provides an empirical examination of
the link between gay-friend corporate policies and firm performance.
Consumer perception
The buying power of the gay market, sometimes referred to as the pink dollar, is
estimated to reach $835 billion by 2014 (Paul et al. 2011). Companies find pink dollar
consumers attractive because, on average, homosexuals are more likely than heterosexuals to be
part of a no-dependent household. As a result, gay consumers are more likely to have higher
levels of disposable income than their heterosexual counterparts (Colgan et al. 2007; Iawata
2006; Valenti 2012; Paul et al. 2011).
6
Hence, companies ignore the gay consumer at the peril of
their own bottom line. In 1994, only 19 Fortune 500 companies targeted advertising campaigns
at gay consumers, a paltry figure compared to the 175 Fortune 500 companies that did so in
2005. This increase in actively marketing to gay consumers by well-known companies such as
Coors Brewing, Subaru, JCPenney, and American Airlines suggests that companies recognize

5
Consistent with academic theory, many companies appear to recognize the value in employees willingness to be
themselves at work. For example, Caroline Stockdale, Senior Vice President of Human Resources at Medtronic,
Inc., provides testament to this recognition: As a world leader in medical technology, Medtronic is committed to
global diversity and inclusion in our workplace. We value each individuals uniqueness and are proud that our
employees can be themselves at work, which drives innovation in our industry.
6
A recent survey (ExperianMarketingServices 2012) finds that the household income of married/partnered
homosexual men (women) exceeds that of their heterosexual counterparts by $21,500 ($7,200).
11

the significance of the pink dollar market (Metcalf and Rolfe 2011). Even the chairman of
Coors Brewing Company, Peter Coors, a political conservative, contends that implementing gay-
friendly corporate policies and advertising directly to the gay community are good business
(Klara 2012).
Gay consumers are distinct in that they are brand loyal (Iawata 2006; Valenti 2012) and
prefer to buy products from companies with gay-friendly corporate policies (Clermont 2006;
Valenti 2012). Companies with gay-friendly policies may ingratiate their trademarks with the
gay consumer, thus allowing these companies to garner a percentage of the pink dollar market.
Conversely, companies with anti-gay actions or policies face a growing risk of losing business
from both homosexual and heterosexual consumers. The recent controversy over anti-gay
remarks made by Chick-fil-As Chief Operating Office and President Dan Cathy resulted in
adverse economic consequences from extensive, negative press coverage and national boycotts
(Klara 2012). In another case, Target Corporations financial donations to anti-gay organizations
resulted in a boycott (Klara 2012). To avoid similar boycotts, Proctor and Gamble, AT&T,
American Express, and Xerox pulled advertising from Dr. Laura Schlessingers radio talk show
to distance themselves from the hosts anti-gay rhetoric (Valenti 2012).
The implementation of gay-friendly policies often requires encouragement by outside
groups (e.g., consumer groups or institutional shareholders). Consumer groups and shareholders
forced Cracker Barrel to abolish its anti-gay policy that resulted in the termination of employees
whose sexual preferences failed to demonstrate normal heterosexual values (Day and Greene
2008), and the New York City Pension Funds pressured KBR, Inc. to adopt an anti-
discrimination policy that includes sexual orientation (Deakin 2011). The fact that exogenous
forces may be required to re-write the employee-benefit policies of companies without these
12

benefits indicates there must be costs associated with adopting gay-friendly corporate policies,
and those costs may outweigh the benefits previously presented.
Potential costs of implementing gay-friendly policies
When determining whether the benefits from implementing gay-friendly policies will
outweigh the costs, we consider two potentially significant costs: the additional financial costs
associated with providing benefits to gay employees domestic partners and the potential
repercussions (e.g., loss of business) from boycotts by activist organizations and consumers with
anti-gay sentiments. The additional financial costs stem from the enrollment of gay employees
domestic partners (and perhaps their dependents) in various employee-benefit programs such as
medical insurance, child care, educational assistance, etc. Although potentially significant,
enrollment statistics nationwide suggest actual increased enrollment due to domestic partners
reaches only a fraction of a percent in most cases (Cordes 2012). It is possible that enrollment
figures increase little because most domestic partnerships involve two working individuals (so
employees same-sex domestic partners already receive such benefits from their jobs). The data
do not support the additional financial cost argument against implementing gay-friendly policies
(Cordes, 2012).
Another potential cost of implementing gay-friendly corporate policies is the loss of
revenue due to boycotts and negative customer reaction (Clermont 2006). Recently, the
American Family Association (AFA) has targeted several companies (e.g., Disney, Ford, Kraft
Foods, Procter & Gamble, and PepsiCo.) because of their gay-friendly policies (Iawata 2006).
For example, the AFA encouraged consumers to boycott PepsiCo in response to the companys
major financial contributions to gay activist groups until 2010. Another organization, One
Million Moms, recently condemned JCPenney for gay-friendly advertisements featuring a
13

lesbian spokesperson and same-sex couples. JCPenney chose not to cease or modify these
advertisements, and One Million Moms ultimately canceled its boycott attempt (Cordes 2012).
Companies maintaining their gay-friendly policies in the face of protests may actually garner
both favor and firmer commitment from pink dollar consumers (Baker, Strub, and Henning
1995). Whether these costs of implementing gay-friendly corporate policies outweigh the
potential benefits remains an empirical question.
3. Hypotheses
Although the emerging research presented above theorizes a positive relation between
gay-friendly corporate policies and firm performance, few studies conduct empirical tests with
financial data. Johnston and Malina (2008), Wang and Schwarz (2010), and Li and Nagar (2013)
use financial data but restrict their analyses to investor sentiments (as expressed in stock-price
reactions) rather than fundamental firm performance measures (except for Li and Nagar (2013),
who supplement their market analysis by examining return on assets). All three studies use HRC
data to measure gay-friendly policies.
Employing an event-study design, Johnston and Malina (2008) examine the association
between the first annual announcement of firms Corporate Equality Index (CEI) scores
(compiled and published by the HRC) and abnormal stock returns surrounding this
announcement. Their findings indicate a significant and positive abnormal return on that initial
announcement day (August 13, 2002) but no significant abnormal return when the window is
extended to three days, suggesting an overall neutral market reaction to the announcement.
Johnston and Malina (2008) suggest that the market reaction to gay-friendly policies is at worst
neutral and that investors do not penalize firms for supporting GLBT workplace diversity,
despite the divisive nature of gay rights. Wang and Schwarz (2010) also use CEI scores as
14

measures of firms progressivity on homosexual issues and examine the long-term valuation
effects of enacting or enhancing gay-friendly policies. They find that changes in firms CEI
scores are positively associated with stock-price changes during the subsequent year. Li and
Nagar (2013) use a calendar portfolio approach and find excess annual returns of 14 percent in
the year following the decision to adopt same-sex domestic-partner benefits.
7
The authors
suggest the excess returns may be due to an increase in profitability, documenting an increase in
return on assets (ROA) following the adoption of these benefits. Taken together, the results of
these studies suggest that firms benefit from implementing gay-friendly corporate policies.
The efficient markets hypothesis suggests that stock prices should reflect rational updates
of investors valuations of the future economic prospects of firms (Fama 1965). Hence, while
the returns-based results offered by Johnston and Malina (2008), Wang and Schwarz (2010), and
Li and Nagar (2013) suggest that investors believe gay-friendly policies to be value-adding, our
study investigates the existence of underlying value-added performance. Because a rational
update of investor expectations would imply that the underlying firm performance has changed,
we suggest three real indicators of firm performance to assess the potential gains of
implementing gay-friendly policies: firm value, productivity, and profitability. We formalize
this expectation in Hypothesis 1, stated in its alternate form.
HYPOTHESIS 1. Gay-friendly corporate policies are positively associated with firm value,
productivity, and profitability.

Hypothesis 1 predicts an association between gay-friendly corporate policies and firm
performance. This association may result from financially strong firms adopting of gay-friendly
policies. However, our theory development suggests that the relation is causal through

7
Li and Nagar (2013) obtain their data on same-sex domestic-partner benefit adoptions from the HRC, but they do
not use CEI data. Accordingly, Li and Nagars sample period begins in 1990, whereas the HRC first reported CEI
scores 2002.
15

intermediary channels such as lowering employee stress and anxiety, increasing employee focus
and productivity, lowering recruitment and retention costs, and increasing sales to an enhanced
consumer base. Therefore, in Hypothesis 2, we predict that gay-friendly policies actually
promote better performance by testing the association of changes in firm performance with
implementations and discontinuations of gay-friendly policies.
HYPOTHESIS 2. Implementations (discontinuations) of gay-friendly corporate policies are
positively (negatively) associated with changes in firm value, productivity, and
profitability.

Firms that require highly skilled workers place more value on employee recruitment and
retention (Faleye and Trahan 2011). These firms may expand their pool of prospective
employees by adopting gay-friendly policies; hence, we predict these firms receive greater
performance benefits from such policies than other firms with less need for highly skilled
workers. This prediction is supported by Florida and Gates (2004), who find that, while locating
in a geographic region with high overall diversity positively correlates with financial
performance for high-technology firms, the concentration of the gay population in the area is the
foremost indicator of high-technology firms success. The authors argue that the concentration of
gay people in a geographic area reflects the frontier or fringe culture upon which the high-
technology field thrives.
8
Hypothesis 3 formalizes our expectation.
HYPOTHESIS 3. The positive associations between gay-friendly corporate policies and firm
value, productivity, and profitability increase with the demand for highly skilled labor.

4. Data and empirical method
Data
Our initial sample contains 26,243 firm-year observations with non-missing Gay &
Lesbian Policies ratings (DIV_STR_G0) from the MSCI ESG STATS database for years 1996

8
This finding may also reflect that high-technology firms expand demand for their products by locating near and
appealing to pink dollar consumers.
16

through 2009. Beginning in 1991, the MSCI ESG STATS database has published annual CSR
ratings of publicly traded US companies. These ratings reflect the presence or absence (i.e., 0/1
indicator variables) of various strengths and concerns, organized into seven categories:
community, corporate governance, diversity, employee relations, environment, human rights,
and product.
9

Related research (e.g., Johnston & Malina, 2008; Wang & Schwarz, 2010) has used the
HRCs CEI scores to study gay-friendly corporate policies. While the CEI, compiled and
reported by the HRC since 2002, is meticulous in its analyses of these policies, we use the MSCI
ESG STATS database because it provides a much larger sample of companies with publicly
available data and a longer time-series of observations. The CEI database ranges from 319 firms
in 2002 to 636 firms in 2012, and many of these businesses are privately held (thus lacking
publicly available financial-statement data required for our analyses); in contrast, the MSCI ESG
STATS database included 650 firms from 1991 to 2000 but expanded its coverage to 1,100 firms
from 2001 to 2002 and 3,100 firms from 2003 to the present. Whereas CEI focuses exclusively
on gay-friendly policies, MSCI ESG STATS includes data on a broad set of CSR metrics; if
these other metrics are correlated with gay-friendly policies, failing to control for them in our
multivariate analyses may result in a correlated-omitted-variables problem.
The MSCI ESG STATS database first reported the Gay & Lesbian Policies rating in
1995; however; our sample period begins in 1996 because that is the first year of data availability
in the RiskMetrics Directors database, which we use to construct a control variable. We end our
sample period in 2009 because MSCI ESG STATS discontinued the collection and reporting of
numerous strength and concern ratings in 2010; including post-2009 observations could

9
For additional information concerning the individual ratings comprising each of these seven categories, please see
http://www.msci.com/products/esg/stats/.
17

introduce measurement error and affect the associations between our response variables and
certain control variables. We discard 5,598 (10,785, 5,241) firm-year observations that lack
sufficient data from the Compustat Fundamental Annual (RiskMetrics Governance and
Directors, Compustat Executive Annual Compensation) database to calculate required variables
for our analyses.
10
These reductions yield a sample of 4,619 firm-year observations, which we
use to examine Hypotheses 1 and 3. Finally, we eliminate an additional 1,752 firm-year
observations that lack prior-year data required to calculate change variables, leaving 2,867 firm-
year observations to test Hypothesis 2. Table 1 presents this sample screening process.
----- Insert Table 1 here -----
Empirical method
We use the following three regression models to test our hypotheses:
Y = +
1
gay_friendly +
2
com_score +
3
cgov_score +
4
div_score +
5
emp_score +
6
env_score +
7
hum_score +
8
pro_score +
9
ln_at +
10
lev +
11
capex +
12
class_board +
13
board_size +
14
board_ind +
15
ceo_own +
16-79
industry +
80-93
year + (1)
Y = +
1
gay_friendly +
2
com_score +
3
cgov_score +
4
div_score +
5
emp_score +
6
env_score +
7
hum_score +
8
pro_score +
9
ln_at +
10
lev +
11
capex +
12
class_board +
13
board_size +
14
board_ind +
15
ceo_own +
16-75
industry +
76-87
year + (2)
Y = +
1
gay_friendly +
2
rd +
3
gay_friendly rd +
4
com_score +
5
cgov_score +

10
Requiring firm-year observations to possess non-missing data from the RiskMetrics and Execucomp databases in
order to construct control variables for our multivariate analyses results in a substantial decrease in sample size that
may limit the generalizability of our findings. In sensitivity analyses (untabulated), we exclude these control
variables related to board characteristics and CEO compensation from our analyses and thereby increase our sample
size from 4,619 to 20,645 firm-year observations. Our univariate, bivariate, and multivariate results are robust to this
change.
18

6
div_score +
7
emp_score +
8
env_score +
9
hum_score +
10
pro_score +
11
ln_at +
12
lev +
13
capex +
14
class_board +
15
board_size +
16
board_ind +
17
ceo_own +
18-81
industry +
82-95
year + (3)
Y = q, cd_res, ln_sale_emp, or roa
We estimate these three models four times each, once for each of our four response
variables. We intend these four response variables to capture the underlying theoretical
constructs of firm value (q), productivity (cd_res and ln_sale_emp), and profitability (roa).
Following Faleye and Trahan (2011), we define these four response variables as follows:
11

q = Tobins Q: (total assets - total common equity + fiscal year closing price
common shares outstanding) / total assets;
cd_res = the residual from the Cobb-Douglas production function:
12

ln(net sales) = +
1
ln(net property, plant, and equipment) +
2

ln(employees) +
ln_sale_emp = ln(net sales / employees);
roa = return on assets: operating income after depreciation / total assets.
We require that all firm-year observations report positive values for total assets; total
common equity; common shares outstanding; net sales; net property, plant, and equipment; and
employees. We also require that all firm-year observations report fiscal year closing prices
greater than $1 and non-missing operating income after depreciation. We winsorize the four
response variables at the 1
st
and 99
th
percentiles within each industry-year group to reduce the
influence of outlying observations on our parametric results. For cd_res, the predicted values

11
In sensitivity analyses (untabulated), we adjust each of the four response variables by subtracting its industry-year
median value, where industry is defined by two-digit SIC code here and throughout the paper. Our results are robust
to this change.
12
We estimate this production function within each industry-year group.
19

from the estimation of this Cobb-Douglas production function represent the expected sales for a
firm within a particular industry-year group given particular levels of fixed assets (i.e., property,
plant, and equipment) and human capital (i.e., employees). Thus, the residuals represent firms
unexpected sales, a measure of productivity (Faleye, Mehrotra, and Morck 2006; Faleye and
Trahan 2011).
The indicator variable gay_friendly is the explanatory variable of interest in Model (1).
We set this variable equal to the Gay & Lesbian Policies rating (DIV_STR_G) from the MSCI
ESG STATS database, which codes this variable as 1 if the company has notably progressive
gay-friendly corporate policies in year t, and 0 otherwise.
13
The coefficient for gay_friendly
represents the difference in the response variable (q, cd_res, ln_sale_emp, or roa) for firms with
gay-friendly corporate policies relative to companies that lack such policies. Thus, in Model (1),
the
1
coefficient for gay_friendly tests whether firms with such policies (i.e., gay_friendly=1)
experience higher firm value, productivity, and profitability relative to companies without such
policies (i.e., gay_friendly=0). A positive
1
coefficient would provide support for Hypothesis 1.
Prior research (e.g., Faleye & Trahan, 2011) finds that firms with labor-friendly
corporate practices such as employee stock-ownership and profit-sharing programs experience
favorable corporate outcomes. To avoid a potential correlated-omitted-variables problem (i.e.,
firms with gay-friendly corporate policies may have other labor-friendly corporate policies or,
more broadly, superlative corporate social performance that drives higher levels of our four
response variables), we include in Model (1) control variables for the seven ratings categories in
MSCI ESG STATS. Specifically, we include seven count variables equal to the sums of the
strength ratings from the community, corporate governance, diversity, employee relations,

13
MSCI EGS STATS uses multiple criteria to define notably progressive policies, including commendation by the
HRC as an industry or corporate leader on such policies, earning an HRC CEI score of 60 or above, or both the
presence of an anti-discrimination policy and the extension of benefits to same-sex domestic partners.
20

environment, human rights, and product categories.
14
Because the Gay & Lesbian Policies
rating (DIV_STR_G), our explanatory variable of interest in Model (1), is one of the strengths in
the diversity category, we subtract DIV_STR_G from the sum of the diversity strengths
(DIV_STR_NUM) to separately examine the influences of gay-friendly policies and other
diversity-enhancing policies on firm outcomes.
Consistent with Faleye and Trahan (2011, Table VII: 16) we include the following
additional seven control variables:
ln_at = ln(total assets);
lev = total long-term debt / total assets;
capex = capital expenditures / total assets;
class_board = an indicator variable coded 1 if the firm has a classified board, and 0
otherwise;
board_size = the total number of directors on the board;
board_ind = the percentage of independent directors on the board: independent directors /
total directors;
ceo_own = the percentage of the firms shares owned by the CEO.
We use data from the Compustat Fundamentals Annual database to control for firm size
(ln_at), leverage (lev), and investment opportunities (capex). We use data from the RiskMetrics
Governance database to control for board-election method (class_board) and from the
RiskMetrics Directors database to control for board size (board_size) and board independence

14
In sensitivity analyses (untabulated), we (1) include seven additional control variables equal to the sums of the
concern variables for each category and (2) calculate the original seven control variables as the sum of the
strength variables in each category less the sum of the concern variables for that category. Our results are robust
to these changes.
21

(board_ind).
15
Finally, to control for managerial ownership, we use data from the Compustat
Execucomp Annual Compensation database to measure the percentage of shares owned by the
CEO (ceo_own). Prior research (e.g., Morck, Shleifer, & Visnhny, 1988; Yermack, 1996;
Bebchuk & Cohen, 2005; Faleye, 2007; Faleye & Trahan, 2011) demonstrates that these
variables influence firm value, productivity, and profitability and thus represent necessary
controls when examining the association between gay-friendly corporate policies and our four
response variables.
To minimize the influence of outliers, we winsorize all continuous control variables at the
1
st
and 99
th
percentiles within each industry-year group. We include indicator variables to
capture industry- and year-specific influences on our four response variables, and we cluster by
firm to generate robust standard errors. We also examine multicollinearity diagnostics to ensure
that correlations between explanatory variables do not influence our multivariate regression
results. Table 2 provides definitions of all variables.
In Model (1), we utilize a levels specification, regressing the levels of firm value (q),
productivity (cd_res and ln_sale_emp), and profitability (roa) on the presence or absence of gay-
friendly corporate policies while controlling for other factors known to affect our response
variables. A concern with this levels specification is that the associations between
gay_friendly and our four response variables may be endogenous. That is, the implementation of
gay-friendly policies may result in enhanced firm value, productivity, and profitability, or better

15
On classified boards, directors serve differing term lengths, such that only certain board positions are elected in a
particular year. During our sample period, the RiskMetrics Governance database reports the classified-board
indicator variable (CBOARD) only in certain years: 1995, 1998, 2000, 2002, 2004, and 2006-2010. Rather than
delete from our sample firm-year observations in years lacking this variable, we use data from surrounding years to
infer this variable in those years. For example, if CBOARD=1 in 1998 and 2000, we set class_board=1 in 1999.
However, if CBOARD=1 in 1998 but 0 in 2000 (or, 0 in 1998 but 1 in 2000), we delete the 1999 firm-year
observation from our sample rather than assign a potentially erroneous value to class_board.
22

performing firms may be more likely to implement such policies. We address this concern using
a changes specification in Model (2).
16
Specifically, we regress the change in firm value, our
two measures of productivity, and profitability from year t-1 to year t on the implementation,
continuation, or discontinuation of gay-friendly employment policies. Thus, we code the
explanatory variable of interest ( gay_friendly) as follows: 1 for firms that implement a policy
(i.e., gay_friendly=0 in year t-1 and 1 in year t), 0 for firms that neither implement (i.e.,
gay_friendly=0 in years t-1 and t) nor discontinue (i.e., gay_friendly=1 in years t-1 and t) a
policy, and -1 for firms that discontinue (i.e., gay_friendly=1 in year t-1 and 0 in year t) a policy
in the current year.
17
In addition to gay_friendly, we measure all other explanatory variables
(except industry and year fixed effects) as changes from year t-1 to year t in Model (2). The
1

coefficient for gay_friendly tests whether firms that implement (discontinue) gay-friendly
employment policies experience increases (decreases) in firm value, productivity, and
profitability relative to companies that neither implement nor discontinue such policies. A
positive
1
coefficient would provide support for Hypothesis 2.
In Model (3) we examine the moderating effect of demand for highly skilled labor on the
associations between gay_friendly and our four response variables. Following Faleye and Trahan
(2011), we use research and development expenditures to reflect the need for employees with
technical expertise in their fields (e.g., computer scientists and electrical engineers in high-tech
companies, chemists in pharmaceutical companies, etc.). Specifically, in Model (3), we add the
following variable to Model (1):

16
In supplemental analyses (tabulated in Tables 10-15), we also use treatment-effects modeling, propensity-score
matching, and causality tests based on temporal precedence to address this endogeneity concern. Our results are
robust to these alternate empirical methods.
17
In sensitivity analyses (untabulated), we separately examine (1) observations with gay_friendly=0 in years t-1 and
t and (2) observations with gay_friendly=1 in years t-1 and t. We do not find a significant difference in any of our
four outcome variables between these two groups. Thus, we aggregate these two groups as gay_friendly=0 in
Model (2).
23

rd = an indicator variable coded 1 if research and development expense > 0, and 0
otherwise.
18

We also interact this new variable with our explanatory variable of interest (gay_friendly rd).
In Model (3), the
1
coefficient for the gay_friendly main effect tests whether, among firms
without demand for highly skilled labor (i.e., rd=0), firms with gay-friendly policies experience
higher firm value, productivity, and profitability relative to companies without gay-friendly
policies. The
3
coefficient for the gay_friendly rd interaction tests whether this association
differs among firms with demand for highly skilled labor (i.e., rd=1). A positive
3
coefficient
would provide support for Hypothesis 3.
5. Results
Univariate descriptive statistics
Table 3 presents descriptive statistics. The mean for gay_friendly is 0.1487, indicating
that 14.87 percent of firm-year observations report gay-friendly corporate policies. The means
for com_score, cgov_score, div_score, emp_score, env_score, hum_score, and pro_score are all
less than 0.5, indicating that the average firm in our sample reports zero strengths in each of
these seven categories. The mean (median) sample observation reports a debt-to-assets ratio of
16.10 (13.69) percent and expends 4.82 (3.24) percent of assets on capital investments. The
average sample observation has a classified board with approximately nine members
(approximately 70 percent of whom are independent) and incurs research and development
expenses.
Table 4 shows the percentage of sample firms with gay-friendly corporate policies by

18
In sensitivity analyses (untabulated), we replace the rd indicator variable with the rd_intensity continuous
variable, measured as research and development expense / total assets. Our results are robust to this change. We use
the rd indicator variable in our primary analyses for ease of interpreting results.
24

year. We present these annual percentages for observations without (N=26,243) and with
(N=4,619) control variables but discuss only those for the reduced sample. In 1996, the first year
in our sample period, this percentage is 4.26 percent (four of 94 firms). By 2009, the last year in
our sample, this percentage climbs to 20.58 percent (135 of 656 firms). While this increase
reflects changing societal views of homosexuality, it also may reflect boards and managers
acting in the best interest of shareholders by enacting policies that enhance firm value,
productivity, and profitability as our hypotheses contend.
Table 5 presents means and medians for q, cd_res, ln_sale_emp, and roa for observations
with and without gay-friendly corporate policies, respectively. In Panel A, we test for differences
in means for each of these four outcome variables between these two groups. Results reveal that
observations with gay-friendly corporate policies (i.e., gay_friendly=1) report higher firm value
(difference in q is 0.3298), higher productivity (differences in cd_res and ln_sale_emp are
0.2030 and 0.2239, respectively), and higher profitability (difference in roa is 0.0080) than
observations lacking these policies (i.e., gay_friendly=0); two-sample t-tests confirm that each of
these differences is statistically significant. In Panel B, we test for differences in medians. These
two-sample location tests corroborate the results in Panel A for q, cd_res, and ln_sale_emp;
however, the difference in medians for roa is not statistically significant.
Bivariate correlations
Table 6 presents bivariate correlations between gay_friendly and each of the response
variables from Model (1). Consistent with the tests for differences in means in Panel A of Table
5, the bivariate Pearson correlation coefficients in Panel A of Table 6 show that gay_friendly is
25

positively and statistically associated with q, cd_res, ln_sale_emp, and roa. Similarly, consistent
with the tests for differences in medians in Panel B of Table 5, the bivariate Spearman
correlation coefficients in Panel B of Table 6 show that gay_friendly is positively and
statistically associated with q, cd_res, and ln_sale_emp, but the Spearman correlation coefficient
between gay_friendly and roa, while positive, is insignificant. Taken together, the tests for
differences in means and medians in Table 5 and the correlation coefficients in Table 6 provide
evidence, consistent with Hypothesis 1, that the presence of gay-friendly corporate policies is
associated with higher firm value, productivity, and (based on parametric statistics) profitability.
Multivariate regression results
Table 7 presents the results of estimating Model (1). The
1
coefficient for gay_friendly
is 0.3557 (0.1127, 0.0991, 0.0034) when q (cd_res, ln_sale_emp, roa) is the response variable.
With the exception of the roa model, these coefficients are significant at the 0.05 level. These
multivariate regression results provide additional support, consistent with Hypothesis 1, that the
presence of gay-friendly corporate policies is associated with higher firm value and productivity.
However, we fail to find evidence that such policies result in higher profitability. In the cd_res
and ln_sale_emp models, the coefficients for div_score are positive and significant, indicating
that policies promoting other types of workforce diversity (e.g., Work/Life Benefits and
Women & Minority Contracting) also improve productivity; in these same two models, the
coefficients for hum_score are positive and significant, indicating that policies promoting human
rights also enhance productivity. Consistent with Faleye and Trahan (2011), the coefficients for
emp_score are positive and significant in the q, cd_res, and ln_sale_emp models but not in the
roa model. The coefficients for certain other explanatory variables (e.g., ln_at, lev, capex, and
26

board_size) are significant in Table 7, indicating the importance of controlling for these factors
in a multivariate regression framework. R
2
statistics range from 18.73 percent in the roa model
to 57.80 percent in the ln_sale_emp model. The condition index (CI) for Model (1) is 25.63, and
no variables variance inflation factor (VIF) exceeds 1.6; accordingly, we contend that linear
dependencies among explanatory variables do not adversely affect our estimated regression
coefficients (Belsley, Kuh, and Welsch 1980).
In Table 8, we report the results of replacing the levels specification in Model (1) with
the changes specification in Model (2). Because we require prior-year data to calculate change
variables, the sample size decreases from 4,619 firm-year observations in Table 7 to 2,867 in
Table 8. The coefficient for gay_friendly is 0.1468 (0.0313, 0.0249, 0.0086) when q (
cd_res, ln_sale_emp, roa) is the response variable, and this coefficient is significant at the
0.1 (0.05) level. In keeping with Hypothesis 2, we provide evidence that firms implementing
(discontinuing) gay-friendly employment policies experience increases (decreases) in firm value,
productivity, and profitability relative to companies that neither implement nor discontinue such
policies.
19
In Model (2), the only control variable that consistently affects our outcome variables
is lev, the coefficient for which is negative and significant across all four models. R
2
statistics
range from 4.01 percent in the cd_res model to 9.50 percent in the ln_sale_emp model. The
CI for Model (2) is 1.86, and no variables VIF exceeds 1.05; thus, as with Model (1), we are not
concerned that multicolliearity adversely affects our results.

19
A total of 127 firm-year observations either implement (i.e., gay_friendly=1) or discontinue (i.e.,
gay_friendly=-1) gay-friendly employment policies during our sample period. In sensitivity analyses (untabulated),
we separate observations that implement (N=105) from those that discontinue (N=22) such policies. The coefficient
for implementing observations is marginally significant (p<0.1) in the q, cd_res, and ln_sale_emp models and
significant (p<0.05) in the roa model. The coefficient for discontinuing observations is insignificant (p>0.1) in the q
and roa models, marginally significant (p<0.1) in the cd_res model, and significant (p<0.05) in the ln_sale_emp
model.
27

In Model (3), we augment Model (1) by adding rd as an explanatory variable, designed to
capture demand for highly skilled labor, and interacting gay_friendly with rd to discern if
demand for highly skilled labor moderates the associations between gay_friendly and our four
outcome variables that we report in Table 7. Table 9 displays the results of estimating Model (3).
In the q model, the
1
coefficient for the gay_friendly main effect (0.0864) is insignificant, but
the
3
coefficient for the gay_friendly rd interaction (0.4988) and the sum of the
1
and
3

coefficients (0.5852) are positive and significant (p<0.05), indicating that the positive relation
between gay_friendly and q in Table 7 stems from firms investing in research and development.
In the cd_res model, the
1
coefficient for the gay_friendly main effect (0.1164) and the sum of
the
1
and
3
coefficients (0.1093) are positive and significant (p<0.05), but the
3
coefficient for
the gay_friendly rd interaction (-0.0072) is insignificant, indicating that the positive relation
between gay_friendly and cd_res in Table 7 does not differ between firms that do and do not
invest in research and development. In the roa model, the
1
coefficient for the gay_friendly
main effect (-0.0121) is negative; however, the
3
coefficient for the gay_friendly rd
interaction (0.0289) is positive and significant (p<0.05) and the sum of the
1
and
3
coefficients
(0.0168) is positive and marginally significant (p<0.1), indicating that the presence of gay-
friendly corporate policies increases profitability for firms that invest in research and
development. Thus, we provide evidence consistent with Hypothesis 3 that the value- and
profitability-enhancing influences of gay-friendly corporate policies are larger for firms needing
employees with technical expertise in their fields, reflecting that such policies augment the pool
of prospective employees from which these companies may hire; however, we do not find
differences between rd=1 and rd=0 observations in the cd_res and ln_sale_emp models. R
2

28

statistics range from 19.02 percent in the roa model to 57.83 percent in the ln_sale_emp model.
6. Supplemental analyses
Endogeneity
To address potential endogeneity (i.e., implementing gay-friendly corporate policies may
result in enhanced firm value, productivity, and profitability, or better performing firms may be
more likely to implement such policies), we conduct three supplemental analyses: treatment-
effects modeling, propensity-score matching, and causality tests based on temporal precedence.
Treatment-effects modeling
We follow Faleye and Trahan (2011) by estimating a two-stage, treatment-effects model.
In the first stage, we estimate the following logistic regression model from Li and Nagar (2013):
gay_friendly = +
1
ln_at +
2
roa +
3
lag_roa +
4
lag2_roa +
5
cash +
6
rd_intensity +
7
firm_age +
8
wage_growth +
9
pacific +
10
mountain +
11

west_south_central +
12
south_atlantic +
13
west_north_central +
14

east_north_central +
15
middle_atlantic +
16
new_england + , where (4)
ln_at = ln(total assets);
roa = return on assets: operating income after depreciation / total assets;
lag_roa = one-year-lagged return on assets;
lag2_roa = two-year-lagged return on assets;
cash = cash and short-term investments / total assets;
rd_intensity = research and development expense / total assets;
firm_age = the current year the first year that the firm appears in the Compustat
Fundamentals Annual database;
29

wage_growth = percentage change in selling, general, and administrative expense from year t-
1 to year t.
20

Li and Nagar (2013) find that geographic factors influence firms decisions to adopt same-sex
domestic-partner benefits. Accordingly, we create nine geographic indicator variables (pacific,
mountain, west_south_central, south_atlantic, west_north_central, east_north_central,
middle_atlantic, new_england, and east_south_central) reflecting which of the nine US Census
Bureau regions each firms headquarters is located.
21

Table 10 presents the results of estimating Model (4) using 18,309 firm-year observations
with complete data from the MSCI ESG STATS and Compustat Fundamentals Annual
databases. As in Li and Nagar (2013), the coefficients for ln_at, roa, cash, rd_intensity, and
pacific are positive and significant (p<0.05). In addition, we find that the coefficients for
wage_growth, and west_south_central are negative and significant, while the coefficient for
new_england is positive and significant. The R
2
statistic is 17.17 percent.
In the second stage, we re-estimate Model (1) using 4,483 firm-year observations with
complete data for all first- and second-stage model variables, replacing the actual gay_friendly
values from the MSCI ESG STATS database with the predicted values from Model (4).
22
Table
11 presents the results of estimating this second-stage model. The coefficient for gay_friendly is
0.8520 (0.2143, 0.2791, 0.0306) when q (cd_res, ln_sale_emp, roa) is the response variable, and
this coefficient is significant (p<0.01 for q, cd_res, and ln_sale_emp, p<0.05 for roa). This

20
If selling, general, and administrative expense is missing, we replace it with total assets.
21
For consistency with Li and Nagar (2013), we use east_south_central as the reference group when we estimate
Model (4).
22
When we estimate the first-stage logistic regression model in SAS, the predicted values for gay_friendly that proc
logistic generates are continuous rather than discrete. For consistency with Model (1), we transform this continuous
output variable into a discrete (i.e., indicator) variable by assigning a value of 1 to predicted probabilities greater
than or equal to 0.5 and a value of 0 to predicted probabilities less than 0.5. In sensitivity analyses (untabulated), we
use the continuous output variable. Our results are robust to this change.
30

empirical method provides evidence that the results in Table 7 stem from gay-friendly corporate
policies boosting firm performance rather than highly performing firms offering benefits to gay
employees.
Propensity-score matching
As an additional approach to allay the concern that firms with and without gay-friendly
corporate policies differ on dimensions such as past performance and that these differences drive
the results of our primary analyses (Tables 5-9), we use propensity-score matching (Rosenbaum
and Rubin 1983; Dehejia and Wahba 2002). Specifically, of the 4,483 firm-year observations
that we use to estimate the second-stage of our treatment-effects model, we identify 667 case
observations with gay-friendly corporate policies and 3,816 potential control observations
without such policies. Then, we attempt to match each of the 667 case observations to the single
control observation within the same industry-year group with the nearest propensity score (i.e.,
the predicted probability that gay_friendly=1 from Model 4). Of the 667 case observations, we
are able to find matches for 625; the remaining 42 case observations lack a potential control
observation within the same industry-year group. To examine the efficacy of our matches, Table
12 displays the means and medians of the eight continuous variables from Model (4) for case
(gay_friendly=1) and control (gay_friendly=0) samples, respectively. We find that our matches
differ in size (ln_at), liquidity (cash), and maturity (firm_age). However, our matches do not
differ in current or past profitability (roa, lag_roa, and lag2_roa), demand for highly-skilled
employees (rd_intensity), or pressure to retain employees (wage_growth).
We re-estimate Model (1) using our propensity-score-matched sample of 1,250 firm-year
31

observations (625 case and 625 control observations), and Table 13 presents these results. The
coefficient for gay_friendly is 0.2867 (0.0822, 0.1118, -0.0034) when q (cd_res, ln_sale_emp,
roa) is the response variable. With the exception of the roa model, these coefficients are
significant.
23
These multivariate regression results provide additional support, consistent with
Hypothesis 1, that the presence of gay-friendly corporate policies is associated with higher firm
value and productivity, even after controlling for firms with high propensities for such policies
but lacking them.
Causality tests based on temporal precedence
The results of estimating Model (2) (Table 8) provide evidence that adoptions
(terminations) of gay-friendly corporate policies are associated with improvements
(impairments) in firm value, productivity, and profitability. To examine the direction of causality
in these results, we rely on temporal precedence (Granger 1969). First, we estimate the following
regression model (using 1,821 firm-year observations with complete data for the current and two
preceding years) to discern if the contemporaneous performance improvements associated with
adoptions of gay-friendly policies persist in the year after adoption:
24

Y = +
1
adopt +
2
lag_adopt +
3
com_score +
4
cgov_score +
5
div_score +
6
emp_score +
7
env_score +
8
hum_score +
9
pro_score +
10
ln_at +
11
lev +
12
capex +
13
class_board +
14
board_size +
15
board_ind +
16
ceo_own +
17-73
industry +
74-84
year + , where (5)

23
Because we include roa as a determinant of gay-friendly corporate policies in Model (4), and because we find that
our case and control samples do not differ in terms of roa in Table 12, we would not expect a significant coefficient
for gay_friendly in the roa model in Table 13.
24
For consistency with Model (6), in which we model the likelihood of adopting gay-friendly corporate policies, our
variables of interest in Model (5), adopt and lag_adopt, reflect only implementations of these policies; we relegate
discontinuations of these policies to the reference group (i.e., the intercept), along with observations that neither
implement nor discontinue these policies. In sensitivity analyses (untabulated), we replace adopt with
gay_friendly (and lag_adopt with lag gay_friendly), and our results strengthen.
32

Y = q, cd_res, ln_sale_emp, or roa;
adopt = an indicator variable coded 1 if gay_friendly=0 in years t-2 and t-1 and
gay_friendly=1 in year t;
lag_adopt = an indicator variable coded 1 if gay_friendly=0 in year t-2 and gay_friendly=1 in
years t-1 and t.
Table 14 presents the results. In the q, cd_res, and ln_sale_emp models, the coefficients for both
adopt and lag_adopt are positive and significant, and the magnitudes of the coefficients are
larger for lag_adopt than for adopt. These results indicate that the positive outcomes (enhanced
firm value and productivity) associated with adopting gay-friendly corporate policies not only
persist but also grow in the year after adoption. The coefficients for adopt and lag_adopt are
insignificant in the roa model.
Second, we estimate the following logistic regression model (using the same 1,821 firm-
year observations) to discern if past performance outcomes influence firms decisions to adopt
gay-friendly corporate policies:
adopt = +
1
X +
2
lag_X +
3
lag2_X +
4
ln_at +
5
cash +
6
rd_intensity +
7
firm_age +
8
wage_growth +
9-16
geography + , where (6)
X = q, cd_res, ln_sale_emp, or roa;
geography = the geographic indicator variables from Li and Nagar (2013).
Table 15 presents the results. Consistent with our primary analyses, contemporaneous measures
of q, cd_res, ln_sale_emp, and roa (i.e., the
1
coefficients) are positively and significantly
associated with adopt. However, neither the one- nor the two-year-lagged measures of these
variables are associated with adopt (i.e., the
2
and
3
coefficients are insignificant across all
33

four estimations of Model 6).
25
Taken together, the results of estimating Models (5) and (6)
provide evidence that past firm value, productivity, and profitability do not influence adoptions
of gay-friendly corporate policies, but adoptions of these policies do result in future
improvements in firm value and productivity.
State anti-discrimination laws
Twenty one states and the District of Columbia prohibit employment discrimination
based on sexual orientation.
26
The presence or absence of an anti-discrimination law at the state
level may influence the performance outcomes associated with implementing gay-friendly
policies at the firm level. Using a survey of 534 GLBT employees, Ragins and Cornwell (2001)
report that both protective legislation (state/local anti-discrimination laws) and organizational
policies and practices (e.g., anti-discrimination policies, same-sex domestic partner benefits, etc.)
reduce perceived workplace discrimination against GLBT employees; however, the beneficial
effect of firm policies is almost three times as large as that of state/local laws. To examine this
issue empirically, we estimate Model (7):
Y = +
1
gay_friendly +
2
law +
3
gay_friendly law +
4
com_score +
5
cgov_score +
6
div_score +
7
emp_score +
8
env_score +
9
hum_score +
10
pro_score +
11
ln_at +
12
lev +
13
capex +
14
class_board +
15
board_size +
16
board_ind +
17
ceo_own +
18-81
industry +
82-95
year + , where (7)

25
Current, one-, and two-year-lagged measures of each variable (q, cd_res, ln_sale_emp, and roa) are highly
correlated; accordingly, multicollinearity may influence these results. In sensitivity analyses (untabulated), we
include each measure in a separate estimation of Model (6) rather than including all three measures in a single
estimation. Our results are robust to this change.
26
These states (and the years in which they implemented these anti-discrimination laws) are as follows: California
(1992), Colorado (2007), Connecticut (1991), Delaware (2009), District of Columbia (1977), Hawaii (2011), Illinois
(2006), Iowa (2007), Maryland (2001), Massachusetts (1989), Maine (2005), Minnesota (1993), Nevada (1999),
New Hampshire (1998), New Jersey (1992), New Mexico (2003), New York (2003), Oregon (2008), Rhode Island
(1995), Vermont (1991), Washington (2006), and Wisconsin (1982).
34

law = an indicator variable coded 1 if the state in which the firm is located prohibits
employment discrimination based on sexual orientation in year t, and 0 otherwise.
Table 16 displays the results of estimating Model (7). In the q and roa models, the
3

coefficients for the gay_friendly law interaction (0.0951, 0.0123) are insignificant, indicating
that state anti-discrimination laws do not influence the association between gay-friendly
corporate policies and either firm value or profitability. However, in the cd_res and ln_sale_emp
models, the
1
coefficients for the gay_friendly main effect (0.1782, 0.1808) are positive and
significant (p<0.01), but the
3
coefficients for the gay_friendly law interaction (-0.1393, -
0.1713) are negative and significant (p<0.05), and the sums of the
1
and
3
coefficients (0.0389,
0.0095) are insignificant, indicating that the positive association between gay-friendly policies
and productivity exists only in states that permit employment discrimination based on sexual
orientation. In addition, the
2
coefficients for the law main effect (0.1060, 0.1247) are positive
and significant (p<0.01). Taken together, these results suggest that (1) firms headquartered in
states that prohibit employment discrimination based on sexual orientation experience higher
productivity than companies headquartered in states that lack such laws and (2) gay-friendly
corporate policies do not enhance productivity in the presence of state anti-discrimination laws.
7. Conclusion
Dimensions of CSR often shift with the underlying mores and views of society. While
CSR initiatives may be costly to implement, prior research reveals that such policies enhance
financial performance (Waddock and Graves 1997; Rushton 2002; Chung et al. 2003; Blazovich
and Smith 2011). Our study extends this literature by documenting a positive association
between gay-friendly corporate policies and financial performance. In particular, our empirical
35

findings reveal that the presence of gay-friendly labor policies is associated with positive levels
of firm value and productivity but not with profitability. When we regress the changes in gay-
friendly policies, we find that implementations (discontinuations) are positively (negatively)
associated with changes in firm value, productivity, and profitability. Finally, the positive
associations between gay-friendly policies and both firm value and profitability are driven by
firms which require employees with technical expertise.
These results are robust to a variety of alterations in methodology (e.g., treatment-effects
modeling and propensity-score matching). We also provide evidence of causality, dampening the
possibility that our results stem from superior financial performance driving firms to adopt gay-
friendly policies.
A long stream of literature has suggested that gay-friendly policies positively affect
financial performance (e.g., Clermont, 2006; Colgan et al., 2007; Ragins et al., 2007; Day &
Greene, 2008; Cordes, 2012); however, our study is the first to document the existence of this
association by examining specific measures of financial performance. We believe enhanced firm
performance stems from four primary sources: (1) the benefits of hiring employees from a more
expansive pool of potential applicants, (2) retaining talented employees and avoiding costs of
replacement, (3) increasing employee productivity by making gay employees more comfortable
in the workplace, and (4) increasing sales by appealing to pink dollar consumers.
Our findings may be of particular interest to corporations considering the enactment of
gay-friendly policies. Because fiscal demonstrations are oftentimes the best motivator for
companies questioning the expansion of diversity initiatives (Fassinger 2008), and few such
demonstrations exist (Metcalf and Rolfe 2011), our study helps fill the gap in the existing
literature on this dimension. Academically, our study extends the market findings of Johnston
36

and Malina (2008), Wang and Schwarz (2010), and Li and Nagar (2013) in two principal ways.
First, we examine a broader sample of firms by using the MSCI ESG STATS database rather
than the HRC data used in prior studies. Second, our findings suggest the underlying financial
performance metrics that may provide rationale as to why firms with gay-friendly policies earn
the superior returns documented in these three prior studies. Their results, taken with ours,
suggest that firms with gay-friendly policies benefit on key factors of financial performance,
which, in turn, increase the investor perception of the firm as proxied by stock-price movements.
While our results are supported by theory from a variety of disciplines and are robust to
several empirical specifications, societys acceptance of homosexuality has grown immensely
over our sample period, mirrored by the growing number of firms adopting gay-friendly policies.
However, as societal views of homosexuality trend toward an even more tolerant outlook in
years to come, whether firms will continue to benefit from implementing gay-friendly policies is
an empirical question. One might argue that first-movers are rewarded the most for adoption;
once the practice becomes pervasive, the financial benefits may be attenuated. Logically, firms
can no longer distinguish themselves as an increasing number join the ranks of adopters. This
lack of distinction, in turn, decreases the ability of the firm to lure employees from competitor
firms or retain capable employees when competitors offer the same equitable policies for their
employees. In addition, there are only so many pink dollars for consumers to spend, and as the
number of gay-friendly firms vying for this market increases, each firms individual share may
decrease. Conversely, equitable treatment of employees may become so important to society that
this dimension of CSR obtains even greater significance in the future. Whether the maximum
benefit that accrues to gay-friendly policies has been reached or will be reached in the future is a
question we leave to future research.
37

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TABLE 1
Sample selection
Initial firm-year observations from the MSCI ESG STATS database for years 1996-2009 with non-missing "Gay & Lesbian Policies" ratings 26,243
Less:
Firm-year observations that lack required data from the Compustat Fundamentals Annual database (5,598)
Firm-year observations that lack required data from the RiskMetrics Governance and Directors databases (10,785)
Firm-year observations that lack required data from the Compustat Execucomp Annual Compensation database (5,241)
Sample size for testing Hypotheses 1 and 3 4,619
Less firm-year observations that lack prior-year data required to calculate change variables (1,752)
Sample size for testing Hypothesis 2 2,867
42
TABLE 2
Variable definitions
Panel A: Variables - primary analyses
Variable Definition
q Tobin's Q: [total assets (AT) - total common equity (CEQ) + fiscal year closing price (PRCC_F) common shares outstanding (CSHO)] / total assets (AT)
cd_res the residual from the Cobb-Douglas production function
a
: ln[net sales (SALE)] = a + b
1
ln[net property, plant, and equipment (PPENT)] + b
2
ln[employees (EMP)] + e
ln_sale_emp ln[net sales (SALE) / employees (EMP)]
roa return on assets: operating income after depreciation (OIADP) / total assets (AT)
gay_friendly an indicator variable coded 1 if Gay & Lesbian Policies (DIV_STR_G)=1, and 0 otherwise
com_score total number of Community strengths (COM_STR_NUM)
cgov_score total number of Corporate Governance strengths (CGOV_STR_NUM)
div_score total number of Diversity strengths (DIV_STR_NUM) - Gay & Lesbian Policies (DIV_STR_G)
emp_score total number of Employee Relations strengths (EMP_STR_NUM)
env_score total number of Environment strengths (ENV_STR_NUM)
hum_score total number of Human Rights strengths (HUM_STR_NUM)
pro_score total number of Product strengths (PRO_STR_NUM)
ln_at ln[total assets (AT)]
lev total long-term debt (DLTT) / total assets (AT)
capex capital expenditures (CAPX) / total assets (AT)
class_board an indicator variable coded 1 if the firm has a classified board (CBOARD), and 0 otherwise
board_size the total number of directors on the board
board_ind the percentage of independent directors on the board: independent directors (IND=1) / total directors
ceo_own the percentage of the firm's shares owned by the CEO (SHROWN_EXCL_OPTS_PCT)
rd an indicator variable coded 1 if research and development expense (XRD) > 0, and 0 otherwise
a
We estimate this model within each industry-year group, where industry is defined by two-digit SIC code.
(continued)
43
TABLE 2 (continued)
Variable definitions
Panel B: Variables - supplemental analyses
Variable Definition
gay_friendly an indicator variable coded 1 if Gay & Lesbian Policies (DIV_STR_G)=1, and 0 otherwise
ln_at ln[total assets (AT)]
roa return on assets: operating income after depreciation (OIADP) / total assets (AT)
lag_roa one-year-lagged return on assets
lag2_roa two-year-lagged return on assets
cash cash and short-term investments (CHE) / total assets (AT)
rd_intensity research and development expense (XRD) / total assets (AT)
firm_age firm age: the current year - the first year that the firm appears in the Compustat Fundamentals Annual database
wage_growth
b
[selling, general, and administrative expense (XSGA) - one-year-lagged XSGA] / one-year-lagged XSGA
pacific an indicator variable coded 1 if the firm is located in Alaska, California, Hawaii, Oregon, or Washington, and 0 otherwise
mountain an indicator variable coded 1 if the firm is located in Arizona, Colorado, Idaho, New Mexico, Montana, Utah, Nevada, or Wyoming, and 0 otherwise
west_south_central an indicator variable coded 1 if the firm is located in Arkansas, Louisiana, Oklahoma, or Texas, and 0 otherwise
south_atlantic an indicator variable coded 1 if the firm is located in Delaware, DC, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, or West Virginia, and 0 otherwise
west_north_central an indicator variable coded 1 if the firm is located in Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, or South Dakota, and 0 otherwise
east_north_central an indicator variable coded 1 if the firm is located in Indiana, Illinois, Michigan, Ohio, or Wisconsin, and 0 otherwise
middle_atlantic an indicator variable coded 1 if the firm is located in New Jersey, New York, or Pennsylvania, and 0 otherwise
new_england an indicator variable coded 1 if the firm is located in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, or Vermont, and 0 otherwise
east_south_central an indicator variable coded 1 if the firm is located in Alabama, Kentucky, Mississippi, or Tennessee, and 0 otherwise
adopt an indicator variable coded 1 if gay_friendly=0 in years t-2 and t-1 and gay_friendly=1 in year t
lag_adopt an indicator variable coded 1 if gay_friendly=0 in year t-2 and gay_friendly=1 in years t-1 and t
law an indicator variable coded 1 if the state in which the firm is located prohibits employment discrimination based on sexual orientation in year t, and 0 otherwise
b
If selling, general, and administrative expense (XSGA) is missing, we replace it with total assets (AT).
44
TABLE 3
Descriptive statistics
Variable N Mean Std. Dev. Minimum Median Maximum
q 4,619 1.9725 1.2922 0.5248 1.5581 15.9374
cd_res 4,619 0.1257 0.4978 -2.1897 0.0784 3.4024
ln_sale_emp 4,619 5.5684 0.8317 1.7509 5.5036 9.5830
roa 4,619 0.0963 0.0913 -0.8475 0.0909 0.7926
gay_friendly 4,619 0.1487 0.3559 0 0 1
com_score 4,619 0.1351 0.4414 0 0 4
cgov_score 4,619 0.1221 0.3423 0 0 3
div_score 4,619 0.4211 0.7387 0 0 5
emp_score 4,619 0.2934 0.5933 0 0 4
env_score 4,619 0.1089 0.3849 0 0 4
hum_score 4,619 0.0037 0.0606 0 0 1
pro_score 4,619 0.0678 0.2573 0 0 2
ln_at 4,619 7.4623 1.3909 3.9559 7.2869 13.1981
lev 4,619 0.1610 0.1478 0 0.1369 0.8508
capex 4,619 0.0482 0.0528 0 0.0324 0.4842
class_board 4,619 0.6997 0.4584 0 1 1
board_size 4,619 9.0457 2.4291 4 9 34
board_ind 4,619 0.6899 0.1582 0 0.7143 1.0000
ceo_own 4,619 0.0358 0.0678 0 0.0093 0.5829
rd 4,619 0.5508 0.4975 0 1 1
We winsorize all continuous variables at the 1
st
and 99
th
percentiles within each industry-year group.
45
TABLE 4
Percentage of sample firms with "Gay & Lesbian Policies" by year
Sample without control variables (N=26,243) Sample with control variables (N=4,619)
Year N N with gay_friendly=1 Percentage N N with gay_friendly=1 Percentage
1996 652 31 4.75% 94 4 4.26%
1997 653 38 5.82% 97 5 5.15%
1998 658 41 6.23% 110 8 7.27%
1999 662 78 11.78% 132 18 13.64%
2000 658 107 16.26% 150 23 15.33%
2001 1,106 149 13.47% 220 24 10.91%
2002 1,108 147 13.27% 291 31 10.65%
2003 2,963 266 8.98% 549 62 11.29%
2004 3,034 375 12.36% 582 80 13.75%
2005 3,015 455 15.09% 540 96 17.78%
2006 2,962 472 15.94% 540 99 18.33%
2007 2,937 496 16.89% 329 52 15.81%
2008 2,923 504 17.24% 329 50 15.20%
2009 2,912 484 16.62% 656 135 20.58%
26,243 3,643 13.88% 4,619 687 14.87%
46
TABLE 5
Tests for differences in means and medians
Panel A: Means
Variable gay_friendly=0 (N=3,932) gay_friendly=1 (N=687) Difference
q 1.9235 2.2533 0.3298 ***
cd_res 0.0955 0.2985 0.2030 ***
ln_emp_sale 5.5350 5.7590 0.2239 ***
roa 0.0951 0.1031 0.0080 **
Panel B: Medians
Variable gay_friendly=0 (N=3,932) gay_friendly=1 (N=687) Difference
q 1.5428 1.6554 0.1126 **
cd_res 0.0565 0.2513 0.1948 ***
ln_emp_sale 5.4731 5.6957 0.2226 ***
roa 0.0907 0.0923 0.0016
st
and 99
th
*** The difference is significant at the 0.01 level.
** The difference is significant at the 0.05 level.
* The difference is significant at the 0.1 level.
47
TABLE 6
Correlation coefficients
Panel A: Pearson
Variable gay_friendly
q 0.0908 ***
cd_res 0.1452 ***
ln_emp_sale 0.0986 ***
roa 0.0310 **
Panel B: Spearman
Variable gay_friendly
q 0.0565 ***
cd_res 0.1393 ***
ln_emp_sale 0.1113 ***
roa 0.0159
st
and 99
th
48
TABLE 7
Model (1): Y = a + b
1
gay_friendly + b
2
com_score + b
3
cgov_score + b
4
div_score + b
5
emp_score + b
6
env_score + b
7
hum_score +
b
8
pro_score + b
9
ln_at + b
10
lev + b
11
capex + b
12
class_board + b
13
board_size + b
14
board_ind + b
15
ceo_own +
b
16-79
industry + b
80-93
year + e
Variable Y = q Y = cd_res Y = ln_sale_emp Y = roa
Intercept 2.4446 *** 0.0131 5.2996 *** 0.0679
(5.47) (0.06) (20.20) (1.34)
gay_friendly 0.3557 *** 0.1127 *** 0.0991 ** 0.0034
(3.00) (2.93) (2.27) (0.51)
com_score -0.0271 0.0303 0.0226 0.0059
(-0.40) (0.89) (0.78) (1.35)
cgov_score -0.0799 -0.0434 -0.0545 -0.0062
(-1.16) (-1.46) (-1.53) (-1.18)
div_score 0.0599 0.0532 *** 0.0505 ** 0.0020
(1.17) (2.92) (2.51) (0.73)
emp_score 0.1348 ** 0.0590 *** 0.1087 *** 0.0061
(2.16) (2.86) (4.54) (1.46)
env_score -0.0606 -0.0794 ** -0.0444 0.0064
(-0.76) (-2.43) (-1.22) (1.09)
hum_score 0.2208 0.2378 ** 0.2062 ** 0.0297 *
(0.67) (2.08) (2.15) (1.83)
pro_score 0.2405 0.0025 -0.0129 -0.0098
(1.34) (0.05) (-0.22) (-1.12)
ln_at -0.0677 0.0415 *** 0.0911 *** -0.0030
(-1.48) (2.94) (5.55) (-0.86)
lev -1.6181 *** -0.3201 *** -0.1756 -0.0733 ***
(-6.27) (-3.37) (-1.57) (-3.70)
capex 4.1161 *** -2.5346 *** -0.4326 0.3008 ***
(6.07) (-8.39) (-1.09) (5.70)
class_board -0.2063 ** 0.0153 -0.0159 -0.0003
(-2.56) (0.50) (-0.44) (-0.05)
board_size -0.0516 *** -0.0166 *** -0.0235 *** -0.0010
(-3.55) (-2.76) (-3.33) (-1.11)
board_ind -0.2962 0.0738 -0.0485 -0.0098
(-1.55) (0.97) (-0.48) (-0.71)
ceo_own 0.7078 -0.4437 * -0.7311 * 0.0401
(1.10) (-1.78) (-1.89) (1.02)
Observations 4,619 4,619 4,619 4,619
R
2
29.23% 19.02% 57.80% 18.73%
st
and 99
th
We report t -values in parentheses.
We omit industry and year indicator variables for concision.
We cluster by firm to generate robust standard errors.
*** The coefficient is significant at the 0.01 level.
** The coefficient is significant at the 0.05 level.
* The coefficient is significant at the 0.1 level.
49
TABLE 8
Model (2): D Y = a + b
1
D gay_friendly + b
2
D com_score + b
3
D cgov_score + b
4
D div_score + b
5
D emp_score + b
6
D env_score +
b
7
D hum_score + b
8
D pro_score + b
9
D ln_at + b
10
D lev + b
11
D capex + b
12
D class_board + b
13
D board_size +
b
14
D board_ind + b
15
D ceo_own + b
16-75
industry + b
76-87
year + e
Intercept 0.0726 0.0409 -0.0086 -0.0072
(1.00) (1.08) (-0.30) (-0.67)
D gay_friendly 0.1468 * 0.0313 ** 0.0249 ** 0.0086 **
(1.65) (2.03) (2.25) (2.05)
D com_score -0.1399 * -0.0115 -0.0016 -0.0004
(-1.89) (-0.77) (-0.13) (-0.08)
D cgov_score -0.0425 -0.0148 -0.0074 -0.0004
(-0.95) (-1.47) (-0.92) (0.13)
D div_score 0.0278 -0.0085 -0.0015 -0.0003
(0.67) (-0.94) (-0.24) (-0.10)
D emp_score -0.0150 0.0114 0.0184 * 0.0047
(-0.24) (0.87) (1.74) (1.29)
D env_score 0.0311 -0.0021 -0.0206 0.0016
(0.54) (-0.10) (-1.27) (-0.27)
D hum_score -0.5204 -0.0307 0.0187 -0.0038
(-1.15) (-0.83) (0.85) (-0.61)
D pro_score -0.3782 * -0.0253 0.0090 -0.0093
(-1.48) (-1.15) (0.39) (-1.03)
D ln_at -0.2310 * -0.0813 ** -0.0266 0.0158
(-1.86) (-2.57) (-0.91) (1.48)
D lev -0.8814 *** -0.2339 *** -0.3109 *** -0.1267 ***
(-4.19) (-4.24) (-6.06) (-7.02)
D capex 0.0544 -0.2085 0.1306 * 0.0691
(0.13) (-1.52) (1.04) (0.95)
D class_board -0.0123 -0.0053 0.0000 0.0024
(-0.16) (-0.17) (-0.01) (0.38)
D board_size -0.0345 ** 0.0035 0.0020 0.0008
(-2.20) (0.93) (0.56) (0.84)
D board_ind -0.2185 -0.0328 -0.0268 0.0026
(-1.12) (-0.88) (-0.83) (0.26)
D ceo_own 0.2264 -0.1700 0.0004 -0.0378
(0.28) (-1.39) (0.01) (-0.91)
Observations 2,867 2,867 2,867 2,867
R
2
7.75% 4.01% 9.50% 8.92%
st
and 99
th
50
TABLE 9
1
gay_friendly + b
2
rd + b
3
gay_friendly rd + b
4
com_score + b
5
cgov_score + b
6
div_score + b
7
emp_score +
b
8
env_score + b
9
hum_score + b
10
pro_score + b
11
ln_at + b
12
lev + b
13
capex + b
14
class_board + b
15
board_size +
b
16
board_ind + b
17
ceo_own + b
18-81
industry + b
82-95
year + e
Intercept 2.1375 *** -0.0278 5.2704 *** 0.0724
(4.93) (-0.12) (20.05) (1.42)
gay_friendly 0.0864 0.1164 ** 0.0808 -0.0121
(0.88) (2.18) (1.36) (-1.48)
rd 0.2743 *** 0.0411 0.0270 -0.0063
(3.32) (1.06) (0.51) (-0.97)
gay_friendly rd 0.4988 ** -0.0072 0.0338 0.0289 **
(2.51) (-0.11) (0.47) (2.55)
com_score -0.0371 0.0264 0.0218 0.0057
(-0.54) (0.87) (0.74) (1.31)
cgov_score -0.0602 -0.0410 -0.0526 -0.0064
(-0.87) (-1.37) (-1.46) (-1.22)
div_score 0.0565 0.0530 *** 0.0502 ** 0.0019
(1.11) (2.90) (2.50) (0.71)
emp_score 0.1172 * 0.0581 *** 0.1073 *** 0.0056
(1.90) (2.82) (4.48) (1.34)
env_score -0.0881 -0.0817 ** -0.0467 0.0061
(-1.12) (-2.51) (-1.28) (1.04)
hum_score 0.3701 0.2475 ** 0.2185 ** 0.0325 *
(0.97) (2.17) (2.32) (1.93)
pro_score 0.2155 -0.0012 -0.0153 -0.0093
(1.26) (-0.02) (-0.27) (-1.08)
ln_at -0.0564 0.0427 *** 0.0921 *** -0.0031
(-1.28) (3.04) (5.65) (-0.88)
lev -1.5722 *** -0.3139 *** -0.1712 -0.0740 ***
(-6.18) (-3.31) (-1.52) (-3.76)
capex 4.0680 *** -2.5351 *** -0.4361 0.2986 ***
(6.13) (-8.40) (-1.10) (5.66)
class_board -0.1962 ** 0.0157 -0.0151 0.0001
(-2.50) (0.51) (-0.42) (0.02)
board_size -0.0487 *** -0.0162 *** -0.0232 *** -0.0010
(-3.51) (-2.69) (-3.26) (-1.13)
board_ind -0.3328 * 0.0684 -0.0521 -0.0090
(-1.76) (0.89) (-0.51) (-0.65)
ceo_own 0.8566 -0.4288 * -0.7179 * 0.0403
(1.36) (-1.74) (-1.89) (1.03)
gay_friendly + gay_friendly rd 0.5852 *** 0.1093 ** 0.1146 ** 0.0168 *
(3.17) (2.24) (2.14) (1.83)
Observations 4,619 4,619 4,619 4,619
R
2
30.48% 19.09% 57.83% 19.02%
st
and 99
th
*** The coefficient or sum of coefficients is significant at the 0.01 level.
** The coefficient or sum of coefficints is significant at the 0.05 level.
* The coefficient or sum of coefficients is significant at the 0.1 level.
51
TABLE 10
Model (4): gay_friendly = a + b
1
ln_at + b
2
roa + b
3
lag_roa + b
4
lag2_roa + b
5
cash + b
6
rd_intensity + b
7
firm_age +
b
8
wage_growth + b
9
pacific + b
10
mountain + b
11
west_south_central + b
12
south_atlantic + b
13
west_north_central +
b
14
east_north_central + b
15
middle_atlantic + b
16
new_england + e
Variable Y = gay_friendly
Intercept -8.7573 ***
(25.31)
ln_at 0.7573 ***
(20.17)
roa 1.7739 ***
(4.22)
lag_roa 0.5749
(1.63)
lag2_roa 0.7490 *
(1.84)
cash 2.1708 ***
(7.27)
rd_intensity 3.8631 ***
(4.93)
firm_age 0.0045
(1.34)
wage_growth -0.4617 **
(-2.29)
pacific 0.8982 ***
(7.54)
mountain -0.1253
(-0.46)
west_south_central -0.5722 ***
(-2.96)
south_atlantic -0.0069
(-0.05)
west_north_central 0.0285
(0.17)
east_north_central -0.2576 *
(-1.92)
middle_atlantic 0.2503
(2.03)
new_england 0.5606 ***
(3.43)
Observations 18,309
R
2
17.17%
st
and 99
th
We report Z -values in parentheses.
52
TABLE 11
1
gay_friendly + b
2
com_score + b
3
cgov_score + b
4
div_score + b
5
emp_score + b
6
env_score + b
7
hum_score +
b
8
pro_score + b
9
ln_at + b
10
lev + b
11
capex + b
12
class_board + b
13
board_size + b
14
board_ind + b
15
ceo_own +
b
16-79
industry + b
80-93
year + e
Intercept 2.5589 *** -0.1629 5.3235 *** 0.0799
(6.10) (-0.63) (20.10) (1.58)
gay_friendly (predicted) 0.8520 *** 0.2143 *** 0.2791 *** 0.0306 **
(2.78) (2.81) (3.46) (2.03)
com_score 0.0073 0.0263 0.0283 0.0071 *
(0.11) (0.89) (0.97) (1.66)
cgov_score -0.1162 * -0.0453 -0.0593 -0.0074
(-1.69) (-1.49) (-1.64) (-1.40)
div_score 0.0739 0.0568 *** 0.0509 *** 0.0004
(1.45) (3.12) (2.60) (0.16)
emp_score 0.1610 *** 0.0720 *** 0.1162 *** 0.0059
(2.58) (3.44) (4.93) (1.45)
env_score -0.0583 -0.0828 ** -0.0579 0.0068
(-0.73) (-2.42) (-1.60) (1.10)
hum_score 0.2195 0.2247 ** 0.2061 * 0.0264 *
(0.77) (2.08) (1.84) (1.73)
pro_score 0.2095 0.0002 -0.0092 -0.0089
(1.19) (0.00) (-0.17) (-1.08)
ln_at -0.0940 ** 0.0374 ** 0.0800 *** -0.0051
(-2.20) (2.58) (4.77) (-1.48)
lev -1.6775 *** -0.2739 *** -0.1415 -0.0695 ***
(-6.39) (-2.81) (-1.22) (-3.50)
capex 4.1313 *** -2.1934 *** -0.3922 0.2995 ***
(6.12) (-7.20) (-0.98) (5.76)
class_board -0.1989 ** 0.0194 -0.0039 -0.0015
(-2.45) (0.63) (-0.11) (-0.30)
board_size -0.0419 *** -0.0160 *** -0.0201 *** -0.0005
(-3.04) (-2.68) (-2.87) (-0.65)
board_ind -0.2584 0.0799 -0.0203 -0.0097
(-1.32) (1.04) (-0.20) (-0.69)
ceo_own 0.6588 -0.5429 ** -0.7210 * 0.0424
(1.05) (-2.21) (-1.85) (1.08)
Observations 4,483 4,483 4,483 4,483
R
2
30.47% 18.36% 58.53% 20.24%
st
and 99
th
53
TABLE 12
Tests for differences in means and medians - propensity-score matches
Panel A: Means
Variable gay_friendly=0 (N=625) gay_friendly=1 (N=625) Difference
ln_at 7.3291 8.4035 1.0744 ***
roa 0.1020 0.1025 0.0005
lag_roa 0.1060 0.1053 -0.0007
lag2_roa 0.1079 0.1050 -0.0029
cash 0.1711 0.1994 0.0283 ***
rd_intensity 0.0311 0.0336 0.0026
firm_age 22.0944 25.1616 3.0672 ***
wage_growth 0.1010 0.0924 -0.0085
Panel B: Medians
Variable gay_friendly=0 (N=625) gay_friendly=1 (N=625) Difference
ln_at 7.1031 8.2560 1.1529 ***
roa 0.0946 0.0916 -0.0029
lag_roa 0.0990 0.0938 -0.0052
lag2_roa 0.1001 0.0925 -0.0076
cash 0.1050 0.1480 0.0430 ***
rd_intensity 0.0000 0.0000 0.0000
firm_age 17 20 3.0000 ***
wage_growth 0.0794 0.0741 -0.0053
st
and 99
th
54
TABLE 13
1
gay_friendly + b
2
com_score + b
3
cgov_score + b
4
div_score + b
5
emp_score + b
6
env_score + b
7
hum_score +
b
8
pro_score + b
9
ln_at + b
10
lev + b
11
capex + b
12
class_board + b
13
board_size + b
14
board_ind + b
15
ceo_own +
b
16-57
industry + b
58-71
year + e
Intercept 2.7834 *** 0.0218 5.0274 *** 0.1232 ***
(4.01) (0.10) (20.20) (3.14)
gay_friendly 0.2867 ** 0.0822 * 0.1118 ** -0.0034
(2.19) (1.74) (2.11) (-0.43)
com_score -0.0959 0.0148 0.0211 0.0029
(-0.90) (0.40) (0.57) (0.48)
cgov_score -0.0533 -0.0899 * -0.1006 * -0.0128
(-0.44) (-1.77) (-1.79) (-1.34)
div_score 0.0042 0.0419 0.0343 0.0018
(0.06) (1.64) (1.30) (0.47)
emp_score 0.1320 0.0596 ** 0.1195 *** 0.0073
(1.22) (1.99) (3.87) (1.05)
env_score -0.1036 -0.0833 * -0.0582 0.0067
(-0.98) (-1.94) (-1.35) (0.90)
hum_score 0.3247 0.2285 0.2296 * 0.0309
(0.64) (1.35) (1.85) (1.30)
pro_score 0.4047 -0.0340 -0.0449 -0.0089
(1.22) (-0.45) (-0.51) (-0.66)
ln_at 0.0373 0.0773 *** 0.1012 *** -0.0015
(0.42) (3.53) (4.16) (-0.31)
lev -1.9192 *** -0.4093 ** -0.3603 ** -0.0779 ***
(-4.97) (-2.51) (-2.08) (-2.95)
capex 6.9382 *** -3.5511 *** -2.0446 * 0.5580 ***
(3.60) (-5.44) (-2.59) (4.57)
class_board -0.1361 -0.0047 -0.0125 -0.0114
(-0.85) (-0.09) (-0.23) (-1.25)
board_size -0.0662 ** -0.0240 ** -0.0292 ** -0.0002
(-1.97) (-2.46) (-2.22) (-0.14)
board_ind -0.6406 * -0.0018 -0.0876 -0.0043
(-1.68) (-0.01) (-0.56) (-0.17)
ceo_own 0.6427 -0.6884 ** -0.8483 ** 0.0067
(0.44) (-2.17) (-2.11) (0.08)
Observations 1,250 1,250 1,250 1,250
R
2
34.09% 28.15% 63.04% 25.49%
st
and 99
th
55
TABLE 14
1
adopt + b
2
lag_adopt + b
3
com_score + b
4
cgov_score + b
5
div_score + b
6
emp_score + b
7
env_score +
b
8
hum_score + b
9
pro_score + b
10
ln_at + b
11
lev + b
12
capex + b
13
class_board + b
14
board_size + b
15
board_ind +
b
16
ceo_own + b
17-73
industry + b
74-84
year + e
Intercept 2.5258 *** -0.4899 5.1046 *** 0.1397 **
(3.78) (-1.58) (17.12) (2.37)
adopt 0.2688 * 0.0810 ** 0.1306 *** 0.0074
(1.82) (2.01) (3.14) (0.77)
lag_adopt 0.3182 * 0.1405 *** 0.1619 *** 0.0128
(1.75) (2.95) (3.44) (1.36)
com_score 0.0272 0.0391 0.0366 0.0150 **
(0.32) (1.10) (1.00) (2.41)
cgov_score -0.1138 -0.0094 -0.0312 -0.0036
(-1.07) (-0.23) (-0.67) (-0.41)
div_score 0.0162 0.0766 *** 0.0673 *** -0.0015
(0.29) (3.16) (2.63) (-0.41)
emp_score 0.1616 0.0961 *** 0.1422 *** 0.0016
(1.57) (3.43) (4.53) (0.25)
env_score -0.0259 -0.5390 -0.0248 0.0163 *
(-0.19) (-1.04) (-0.47) (1.65)
hum_score 0.4734 0.1081 0.1033 0.0215
(1.32) (0.68) (0.72) (1.43)
pro_score 0.2950 0.0212 0.0467 -0.0058
(1.10) (0.28) (0.58) (-0.49)
ln_at 0.0043 0.0865 *** 0.1296 *** -0.0047
(0.05) (4.55) (6.26) (-0.79)
lev -2.2342 *** -0.1838 -0.0928 -0.0758 **
(-5.34) (-1.32) (-0.59) (-2.28)
capex 4.5206 *** -2.3310 *** -0.8693 * 0.3298 ***
(3.62) (-5.75) (-1.65) (4.03)
class_board -0.2168 * 0.0272 -0.0073 -0.0069
(-1.70) (0.65) (-0.15) (-0.93)
board_size -0.0672 *** -0.0205 *** -0.0291 *** -0.0016
(-2.72) (-2.60) (-3.25) (-1.13)
board_ind -0.5403 * 0.1089 -0.0101 -0.0167
(-1.85) (1.01) (-0.07) (-0.75)
ceo_own 0.7004 -0.4404 -0.7016 0.0373
(0.74) (-1.45) (-1.36) (0.61)
Observations 1,821 1,821 1,821 1,821
R
2
34.77% 29.28% 66.45% 24.09%
st
and 99
th
56
TABLE 15
Model (6): adopt = a + b
1
X + b
2
lag_X + b
3
lag2_X + b
4
ln_at + b
5
cash + b
6
rd_intensity + b
7
firm_age + b
8
wage_growth +
b
9-16
geography + e
Variable X = q X = cd_res X = ln_sale_emp X = roa
Intercept -5.1669 *** -4.7998 *** -4.6797 *** -5.5052 ***
(-7.76) (-7.66) (-5.18) (-7.61)
X 0.2135 ** 1.5346 ** 1.1120 * 6.2899 ***
(2.21) (2.44) (1.72) (2.70)
lag_X -0.0438 -0.6417 -0.2335 -3.3225
(-0.35) (-0.92) (-0.32) (-1.26)
lag2_X -0.0579 -0.5012 -0.9851 -0.2873
(-0.55) (-0.81) (-1.64) (-0.13)
ln_at 0.2992 *** 0.2597 *** 0.3163 *** 0.3336 ***
(4.53) (3.83) (4.13) (4.60)
cash -0.4642 -0.0143 0.0970 -0.3513
(-0.52) (-0.02) (0.11) (-0.40)
rd_intensity 1.1796 1.4449 1.6045 2.2207
(0.45) (0.56) (0.64) (0.86)
firm_age -0.0242 ** -0.0231 ** -0.0247 ** -0.0253 **
(-2.41) (-2.29) (-2.44) (-2.46)
wage_growth -0.0702 -0.0119 -0.0290 -0.1627
(-0.20) (-0.14) (-0.20) (-0.27)
Observations 1,821 1,821 1,821 1,821
R
2
1.76% 1.88% 1.72% 1.86%
st
and 99
th
We report Z -values in parentheses.
We omit geographic indicator variables for concision.
57
TABLE 16
1
gay_friendly + b
2
law + b
3
gay_friendly law + b
4
com_score + b
5
cgov_score + b
6
div_score + b
7
emp_score +
b
8
env_score + b
9
hum_score + b
10
pro_score + b
11
ln_at + b
12
lev + b
13
capex + b
14
class_board + b
15
board_size +
b
16
board_ind + b
17
ceo_own + b
18-81
industry + b
82-95
year + e
Intercept 2.4214 *** -0.0599 5.2140 *** 0.0773
(5.30) (-0.25) (19.88) (1.55)
gay_friendly 0.2901 0.1782 *** 0.1808 *** -0.0015
(1.59) (3.17) (2.87) (-0.18)
law 0.0283 0.1060 *** 0.1247 *** -0.0135 ***
(0.46) (3.65) (3.75) (-2.59)
gay_friendly law 0.0951 -0.1393 ** -0.1713 ** 0.0123
(0.40) (-2.02) (-2.30) (1.08)
com_score -0.0281 0.0191 0.0132 0.0068
(-0.41) (0.63) (0.46) (1.58)
cgov_score -0.0799 -0.0393 -0.0496 -0.0067
(-1.15) (-1.32) (-1.39) (-1.27)
div_score 0.0585 0.0520 *** 0.0492 ** 0.0022
(1.14) (2.91) (2.49) (0.80)
emp_score 0.1350 ** 0.0614 *** 0.1116 *** 0.0058
(2.17) (3.01) (4.71) (1.40)
env_score -0.0563 -0.0784 ** -0.0434 0.0061
(-0.70) (-2.34) (-1.16) (1.04)
hum_score 0.1993 0.2475 ** 0.2190 ** 0.0294 *
(0.60) (2.19) (2.29) (1.75)
pro_score 0.2394 -0.0039 -0.0204 -0.0091
(1.33) (-0.08) (-0.36) (-1.03)
ln_at -0.0673 0.0442 *** 0.0944 *** -0.0034
(-1.45) (3.15) (5.78) (-0.96)
lev -1.6077 *** -0.2968 *** -0.1484 -0.0764 ***
(-6.21) (-3.18) (-1.34) (-3.94)
capex 4.1190 *** -2.5230 *** -0.4190 0.2993 ***
(6.09) (-8.32) (-1.06) (5.68)
class_board -0.2049 ** 0.0172 -0.0138 -0.0005
(-2.54) (0.56) (-0.39) (-0.10)
board_size -0.0508 *** -0.0144 ** -0.0210 *** -0.0012
(-3.40) (-2.45) (-3.04) (-1.42)
board_ind -0.2974 0.0587 -0.0665 -0.0080
(-1.56) (0.77) (-0.66) (-0.58)
ceo_own 0.7298 -0.4141 * -0.6971 * 0.0358
(1.14) (-1.68) (-1.83) (0.93)
gay_friendly + gay_friendly law 0.3852 ** 0.0389 0.0095 0.0108
(2.54) (0.82) (0.18) (1.19)
Observations 4,619 4,619 4,619 4,619
R
2
29.26% 19.81% 58.20% 19.09%
st
and 99
th
*** The coefficient or sum of coefficients is significant at the 0.01 level.
** The coefficient or sum of coefficints is significant at the 0.05 level.
* The coefficient or sum of coefficients is significant at the 0.1 level.
58

Do Gay-friendly Corporate Policies Boost Firm Performance

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Do Gay-friendly Corporate Policies Enhance Firm Performance?

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