Objective To examine the effects of the racial composition of residents on nursing homes’ financial and quality performance. The study examined Medicare and Medicaid‐certified nursing homes across the United States that submitted Medicare cost reports between the years 1999 and 2004 (11,472 average per year). Data Source Data were obtained from the Minimum Data Set, the On‐Line Survey Certification and Reporting, Medicare Cost Reports, and the Area Resource File. Study Design Panel data regression with random intercepts and negative binomial regression were conducted with state and year fixed effects. Principal Findings Financial and quality performance differed between nursing homes with high proportions of black residents and nursing homes with no or medium proportions of black residents. Nursing homes with no black residents had higher revenues and higher operating margins and total profit margins and they exhibited better processes and outcomes than nursing homes with high proportions of black residents. Conclusion Nursing homes’ financial viability and quality of care are influenced by the racial composition of residents. Policy makers should consider initiatives to improve both the financial and quality performance of nursing homes serving predominantly black residents.