The dual faces of cultural heterogeneity in firm growth: Evidence from large-scale employee reviews

Cultural heterogeneity within firms presents a fundamental tension between its social categorization and cognitive enrichment effects. To reconcile this, our study employs a spatially separate approach to disentangle its multifaceted impact on firm growth. Specifically, we decompose such heterogeneity into three forms, which originate from senior management (management cultural heterogeneity), general employees (employee cultural heterogeneity), and the ones between them (management-employee cultural heterogeneity). These constructs were measured by mining over two million employee reviews of US-listed firms. Empirical results show that management and employee cultural heterogeneity enhances firm performance, whereas management-employee cultural heterogeneity undermines it. We further demonstrate that each form of heterogeneity affects different strategy-related processes, leading to divergent performance outcomes. Theoretically, this study advances the understanding of cultural heterogeneity’s dual nature through novel theoretical framing and large-scale computational linguistics analysis. Practically, we provide insights for firms to foster cultural variety within hierarchical levels while reducing it between them.