Beyond Diversity: Equity and Inclusion in Firms

This paper measures equity and inclusion (EI) using confidential data from employee responses to the Best Companies to Work For survey. Our EI measure has low correlation with gender and ethnic diversity in the boardroom, senior management, and wider workforce, highlighting EI as a distinct dimension of human capital and cautioning against reducing diversity, equity, and inclusion to demographic diversity only. EI is associated with higher future accounting performance, future earnings surprises, and current valuation ratios, but diversity alone is not. EI perceptions among professional workers, such as R&D employees, are significantly correlated with the number and quality of patents.