A Corporate Culture Channel: How Increased Shareholder Governance Reduces Firm Value
106 Pages Posted: 27 Oct 2013 Last revised: 31 Mar 2019
Date Written: March 29, 2019
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: Suggested Citation