Business Culture: The Role of Personal and Impersonal Business Relationships on Market Efficiency

40 Pages Posted: 25 Jun 2019

See all articles by Manuel Munoz-Herrera

Manuel Munoz-Herrera

New York University (NYU) - New York University, Abu Dhabi

Ernesto Reuben

New York University (NYU) - New York University, Abu Dhabi; IZA Institute of Labor Economics

Abstract

In this paper, we study the effects of business culture on market efficiency. We exogenously vary the type of business culture between business-is-business cultures, which consist on impersonal relationships where financial matters are paramount, and business-is-family cultures, which comprise of cohesive personal relationships where financial matters and personal attachments are intertwined. We use a laboratory experiment to assess the effect of business cultures in environments with different degrees of contract enforceability and competition. Our main results indicate that business-is-family cultures are more effective when contracts are unverifiable because they help market participants overcome problems of trust. On the other hand, we find that business-is-business cultures are more effective in competitive settings because they facilitate the severance of ties with unproductive partners.

Keywords: trust, contracts, competition, business culture, communication, social ties

JEL Classification: D91, L22, M14

Suggested Citation

Munoz-Herrera, Manuel and Reuben, Ernesto, Business Culture: The Role of Personal and Impersonal Business Relationships on Market Efficiency. IZA Discussion Paper No. 12398, Available at SSRN: https://ssrn.com/abstract=3408296 or http://dx.doi.org/10.2139/ssrn.3408296

Manuel Munoz-Herrera (Contact Author)

New York University (NYU) - New York University, Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates

Ernesto Reuben

New York University (NYU) - New York University, Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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