Corporate Culture and Innovation: A Tale from an Emerging Market

Abstract

We examine the influence of corporate culture on innovation using a unique set of data from Chinese listed companies over the period 2008-2017. Using the Competing Value Framework, we quantify corporate culture using textual analysis of financial statements. We find a positive and significant impact of a creation culture on innovation measured by both patent applications and citations as well as innovation efficiency. We address endogeneity concerns and conduct a battery of robustness tests, including alternative proxies for both corporate innovation and culture and conclude that variations in culture have a significant impact on firm-level innovation. We also show that a strong creation culture is more likely to spur innovation for firms in more competitive product markets and firms that are subject to higher managerial career concerns. We provide empirical evidence that corporate culture is an important driver in enhancing innovation. Our results have clear implications for directors and shareholders.

Keywords: Corporate Culture, Innovation, Textual Analysis, Chinese Listed Firms

JEL Classification: M14; O31