Working Paper: NBER ID: w23255
Authors: John R. Graham; Campbell R. Harvey; Jillian Popadak; Shivaram Rajgopal
Abstract: Does corporate culture matter? Can differences in corporate culture explain why similar firms diverge with one succeeding and the other failing? To answer these questions, we use a novel survey and interview-based analysis of 1,348 North American firms. Over half of senior executives believe that corporate culture is a top-three driver of firm value and 92% believe that improving their culture would increase their firm's value. Surprisingly, only 16% believe their culture is where it should be. Executives link culture to ethical choices (compliance, short-termism), innovation (creativity, taking appropriate risk), and value creation (productivity, acquisition premia). We assess these links within a framework that implies cultural effectiveness depends on interactions between cultural values, norms, and formal institutions. Our evidence suggests that cultural norms are as important as stated values in achieving success.
Keywords: Corporate Culture; Firm Value; Decision-Making; Cultural Norms; Cultural Values
JEL Codes: D23; G30; K22; M14; O16; Z1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Corporate culture (M14) | Firm value (G32) |
| Cultural norms (Z13) | Business outcomes (L21) |
| Cultural values (Z10) | Business outcomes (L21) |
| Cultural norms and values (Z13) | Cultural effectiveness (F68) |
| Cultural effectiveness (F68) | Positive business outcomes (L25) |
| Cultural misalignment (Z13) | M&A decisions (G34) |
| Ineffective culture (M14) | Unethical behavior (K42) |
| Effective culture (M14) | Risk-taking and innovation (O31) |
| Cultural norms and values interact with formal institutions (O17) | Cultural effectiveness (F68) |