Cultural competency has been proposed as an organizational strategy to address racial/ethnic disparities in the healthcare system; disparities are a long-standing policy challenge whose relevance is only increasing with the increasing population diversity of the US and across the world. Using an integrative conceptual framework based on the resource dependency and institutional theories, we examine the relationship between organizational and market factors and hospitals' degree of cultural competency. Our sample consists of 119 hospitals located in the state of California (US) and is constructed using the following datasets for the year 2006: Cultural Competency Assessment Tool of Hospitals (CCATH) Survey, California's Office of Statewide Health Planning & Development's Hospital Inpatient Discharges and Annual Hospital Financial Data, American Hospital Association's Annual Survey, and the Area Resource File. The dependent variable consists of the degree of hospital cultural competency, as assessed by the CCATH overall score. Organizational variables include ownership status, teaching hospital, payer mix, size, system membership, financial performance, and the proportion of inpatient racial/ethnic minorities. Market characteristics included hospital competition, the proportion of racial/ethnic minorities in the area, metropolitan area, and per capita income. Regression analyses were conducted to assess the relationship between the CCATH overall score and organizational and market variables. Our results show that hospitals which are not-for-profit, serve a more diverse inpatient population, and are located in more competitive and affluent markets exhibit a higher degree of cultural competency. Our results underscore the importance of both institutional and competitive market pressures in guiding hospital behavior. For instance, while not-for-profit may adopt innovative/progressive policies like cultural competency simply as a function of their organizational goals, linking cultural competency with organizational performance may be essential to attract more profit driven hospitals. © 2012 Elsevier Ltd.