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

85 Pages Posted: 27 Oct 2013 Last revised: 10 Mar 2014

See all articles by Jillian Grennan

Jillian Grennan

Duke University - Fuqua School of Business; Duke Innovation & Entrepreneurship Initiative

Date Written: October 25, 2013


I show corporate culture is an important channel through which shareholder governance affects firm value. I develop a novel data set to measure aspects of corporate culture and use a regression discontinuity strategy to demonstrate stronger shareholder governance significantly changes aspects of culture. I find greater results-orientation but less customer-focus, integrity, and collaboration. Consistent with a positive link between governance and value, shareholders initially realize financial gains: increases in sales, profitability, and payout occur. However, over time, I find intangible assets associated with customer satisfaction and employee integrity deteriorate, which partly reverses the gains from greater results-orientation. These findings are consistent with a model of multitasking where stronger governance incentivizes managers to concentrate on easy-to-observe benchmarks at the expense of the harder-to-measure intangibles, even though such actions are not in the firm's best long-term interest. On average, I find firm value declines 1.4% through this corporate culture channel. I use an instrumental variable design and interventions by activist hedge funds to test the external validity of the inferences. Across these complementary research designs, I consistently find strong support for the economic importance of a corporate culture channel.

Keywords: Corporate Governance, Intangible Assets, Corporate Culture, Hedge Fund Activism, Managerial Myopia, Multitasking

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

Suggested Citation

Grennan, Jillian, A Corporate Culture Channel: How Increased Shareholder Governance Reduces Firm Value (October 25, 2013). Available at SSRN: https://ssrn.com/abstract=2345384 or http://dx.doi.org/10.2139/ssrn.2345384

Jillian Grennan (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Register to save articles to
your library


Paper statistics

Abstract Views
PlumX Metrics