Originally published here.

Prior research provides evidence that LGBT-supportive corporate policies are related to important human resources functions, such as enhanced recruitment and retention. In addition, prior research indicates that investors view the adoption of such policies positively. We examine the firm-performance mechanisms underlying favorable stock-market reactions based on an integration of perspectives from corporate social responsibility and the business case for diversity.

Specifically, we estimate a hierarchical linear model (HLM) to account for the nested nature of our data (firms nested within states) and find that (1) the presence of LGBT-supportive policies is associated with higher firm value, productivity, and profitability, (2) the firm-value and profitability benefits associated with LGBT-supportive policies are larger for companies engaged in research and development (R&D) activities, and (3) the firm-value and profitability benefits of LGBT-supportive policies persist in the presence of state anti-discrimination laws.

In supplemental analyses, we find that firms implementing (discontinuing) LGBT-supportive policies experience increases (decreases) in firm value, productivity, and profitability. We are among the first to link LGBT-supportive policies specifically to financial performance outcomes as well as to develop and test a multilevel model of these relationships. Our results have important implications for theory and research on LGBT issues in organizations, human resources managers, and policymakers.

In the case of LGBT-supportive policies, there is currently no federal legislation requiring or even promoting adoption; it is at the discretion of the employer organization. In general, our findings may be of particular interest to corporations considering the enactment of LGBT-supportive policies but are on the fence about it in some way.

Because fiscal demonstrations are oftentimes the best motivator for companies questioning the expansion of diversity initiatives (Fassinger, 2008), and few such demonstrations exist (Metcalf & Rolfe, 2011), our study helps fill the gap in the existing literature on this dimension. Our results, combined with those from previous studies (Johnston & Malina, 2008; Li & Nagar, 2013; Wang & Schwarz, 2010), suggest that firms with LGBT-supportive policies benefit on key factors of financial performance, which, in turn, increase the investor perception of the firm.

We believe our results support the notion that LGBT-supportive policies are important, in part, because they maximize a firm’s ability to attract highly skilled labor in tight labor markets. In other words, when firms manage social responsiveness in the form of diversity-enhancing policies and labor demand effectively, this represents an opportunity for increasing competitive advantage.

This integration of perspectives from the CSR and RBV literatures is consistent with anecdotal evidence that organizational attraction and recruitment are important reasons to adopt such policies. We recommend firms with R&D activities consider leveraging these policies. We also tested the role of state-level anti-discrimination laws as a moderator of relationships between firm-level policies and firm performance measures, and in this sense we are among the first to develop and test a multilevel model of support for LGBT workers.

We developed rationale for cross-level moderation based on an integration of propositions from the CSP model of CSR and perceived organization support theory. Results here are mixed in the sense that firm-level policies are related to some, but not all, measures of operational performance when testing state laws as a boundary condition. First, this suggests that state laws  are important (e.g., Barron & Hebl, 2010; Ragins & Cornwell, 2001). This also suggests that state laws may be a boundary condition that limits the benefits to firms adopting LGBT-supportive policies. This could suggest that firms who are first-movers might garner the most benefits in terms of adoption, an important consideration for firms that have been reticent to adopt supportive policies.

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