Working Paper: NBER ID: w27353
Authors: Gary B. Gorton; Alexander K. Zentefis
Abstract: Markets and firms offer contrasting methods to arrange production. In markets, contracts govern the purchase of parts and services that compose production. In firms, the shared values, customs, and norms coming from a corporate culture govern employees’ joint development of those parts and services. We argue for this distinction as a theory of the firm. Firms exist because corporate culture at times is more efficient at carrying out production than detailed contracts. The firm’s boundary encircles the parts of production for which a manager optimally chooses corporate culture as the organizing device. The model can explain why some mergers and acquisitions fail, in a way consistent with empirical evidence, and why corporate cultures are hard to change.
Keywords: No keywords provided
JEL Codes: D02; D4; G30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| corporate culture (M14) | efficiency of production (D24) |
| corporate culture (M14) | managerial decisions (M51) |
| managerial decisions (M51) | efficiency of production (D24) |
| cultural fit (M14) | success of mergers (G34) |
| corporate culture (M14) | integration vs contracting (L14) |