Abstract

We investigate the effect of within-country diversity (religious and linguistic) on firms’ working capital performance. We build on the arguments that religious diversity in a given country improves performance by promoting corporate ethics, risk-aversion, and limiting opportunistic conduct in business. Linguistic diversity, however, increases the difficulty of doing business, affecting the information-gathering process and increasing the cost of task management. Multiple languages also amplify uncertainty about expectations and interpretations of contracts. Our empirical investigation shows that religious diversity is associated with better working capital performance, while linguistic diversity leads to poorer performance. Cash conversion efficiency is positively linked with higher performance but has a substituting moderating relationship between diversity and performance. Non-positive debt firms are also associated with higher performance and complementarily moderate the impact of diversity on performance. The study further reveals a non-linear effect of diversity on working capital performance.