Duality in Diversity: Cultural Heterogeneity, Language, and Firm Performance

This article deepens our understanding of how the culture of an organization can reflect its underlying capacity for execution and creative exploration and thereby foreshadow how it will perform in the future. Existing literature often understands cultural diversity as presenting a trade-off between task coordination and creative problem-solving. In contrast, we conceptually unpack cultural heterogeneity into two distinct forms: compositional and content-based. We propose that the former undermines coordination and therefore portends worsening firm prof- itability, while the latter facilitates creativity and therefore predicts higher market expectations of future growth. To evaluate these propositions, we use unsupervised learning to identify cul- tural content in employee reviews of nearly 500 publicly traded firms on the Glassdoor website and then develop novel, time-varying measures of cultural heterogeneity. Using coarsened exact matching to reduce imbalance between firms exhibiting higher and lower levels of compositional and content-based heterogeneity, we find support for our two core propositions.