A Corporate Culture Channel: How Increased Shareholder Governance Reduces Firm Value

106 Pages Posted: 27 Oct 2013 Last revised: 31 Mar 2019

See all articles by Jillian Grennan

Jillian Grennan

Santa Clara University, Leavey School of Business; Santa Clara University School of Law; University of California, Berkeley, Haas School of Business, Institue for Business and Social Impact

Date Written: March 29, 2019

Abstract

I show corporate culture is an important channel through which governance affects firm value. By quantifying culture and using a regression discontinuity design for identification, I demonstrate stronger governance significantly changes culture: it increases results-orientation but decreases customer-focus, integrity, and collaboration. Shareholders initially realize financial gains from stronger governance: increases in sales, profitability, and payout occur. Over time, however, intangible assets associated with culture deteriorate, offsetting the gains. These findings support multitasking theory where stronger governance incentivizes focus on easy-to-observe benchmarks over harder-to-measure intangibles. The governance-induced changes in culture are not in shareholders' long-term interests since firm value declines by 1.4% through this channel.

Keywords: Corporate Culture, Organizational Culture, Norms, Values, Corporate Governance, Shareholder Proposals, Intangible Assets, Multitasking, Myopia, Short-termism, Integrity, Collaboration, Results, Customer

JEL Classification: D23, G23, G30, K22, M14, O16

Suggested Citation

Grennan, Jillian, A Corporate Culture Channel: How Increased Shareholder Governance Reduces Firm Value (March 29, 2019). Available at SSRN: https://ssrn.com/abstract=2345384 or http://dx.doi.org/10.2139/ssrn.2345384

Jillian Grennan (Contact Author)

Santa Clara University, Leavey School of Business ( email )

Santa Clara, CA 95053
United States

Santa Clara University School of Law ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

University of California, Berkeley, Haas School of Business, Institue for Business and Social Impact

Berkeley, CA 94720
United States

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