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On the Origin of Shared Beliefs (and Corporate Culture)


Eric Van den Steen


Harvard Business School - Competition & Strategy Unit

August 2005

MIT Sloan Research Paper No. 4553-05

Abstract:     
This paper shows why members of an organization often share similar beliefs. I argue that there are two mechanisms. First, when performance depends on making correct decisions, people prefer to work with others who share their beliefs and assumptions, since such others 'will do the right thing'. Second, beliefs will converge over time through shared learning.

While such homogeneity reduces agency problems, it does so at a cost. I show that, from an outsider's perspective, firms invest on average too much in homogeneity. The theory further predicts that homogeneity will be strongest in successful and older firms where employees make important decisions. Within a firm, homogeneity will be stronger among more important employees. Homogeneity will also be path-dependent, making managers more selective on early hires.

Since shared beliefs are an important aspect of corporate culture (Schein 1985, Kotter and Heskett 1992), I finally show that the model matches some observations on corporate culture, such as the influence of a manager on her firm's culture and the persistence of culture in the face of turnover. A fundamental difference from earlier economic theories of corporate culture is that I show that culture, instead of being created for its own good, can be a side-effect of other purposeful actions. As a consequence, there can be too much culture in firms.

Number of Pages in PDF File: 27

Keywords: homogeneity, shared beliefs, differing priors, corporate culture

JEL Classification: D23, D8, L22, M14, M51

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Date posted: August 30, 2005  

Suggested Citation

Van den Steen, Eric, On the Origin of Shared Beliefs (and Corporate Culture) (August 2005). MIT Sloan Research Paper No. 4553-05. Available at SSRN: http://ssrn.com/abstract=793884 or http://dx.doi.org/10.2139/ssrn.793884

Contact Information

Eric Van den Steen (Contact Author)
Harvard Business School - Competition & Strategy Unit ( email )
Harvard Business School
Soldiers Field Road
Boston, MA 02163
United States
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