Does Corporate Culture Matter? Evidence from Japan

Abstract

Corporate culture does matter. Using data on mission statements of large Japanese firms, we show that corporate culture has a significant impact on corporate policies that determine employment, board, and financial structures. We provide evidence that strong-culture firms are more likely to retain incumbent employees, promote managers from within firms, and have less debt and a higher percentage of interlocking shareholdings than weak-culture firms. This evidence suggests that strong-culture firms consider their culture to be organizational capital and adopt policies to preserve it. We also confirm that culture and its embedding contribute to better corporate performance. We find these culture effects to be considerable in magnitude and at least as large as those of other factors, and assert that the role of culture must be taken into account in order to understand corporate policies and performance.

Keywords: corporate culture, corporate policies, organizational capital, corporate performance, mission statement

JEL Classification: G32, G34, J24, M14, M51