Corporate Culture: Evidence from the Field
98 Pages Posted: 9 Jul 2016 Last revised: 9 Mar 2019
Date Written: March 7, 2019
We show that over half of the 1,348 North American companies that we survey believe that corporate culture is a top-three driver of firm value and 92% say that improving culture would increase their firm's value. Surprisingly, only 16% of executives say their corporate culture is where it should be. Executives link culture to ethical choices (compliance, short-termism), innovation (creativity, taking appropriate risk), and value creation (productivity, mergers and acquisitions). For example, 85% tell us a poorly implemented, ineffective culture increases the chance that an employee might act unethically or even illegally. A majority of executives state that culture has a moderate or large effect on compliance, quality of financial reporting, and the importance of beating earnings targets. Half of our respondents indicate that they would not acquire a target that is not culturally aligned with the bidder, even at a steep discount. We assess these links within a framework that implies cultural effectiveness depends on interactions between cultural values, norms, and formal institutions.
See our related paper: Corporate Culture: The Interview Evidence.
Keywords: Corporate Culture, Values, Norms, Leadership, Corporate Governance, Incentive Compensation, Informal Institutions, Intangible Assets, Valuation, Finance, Risk-taking, Short-termism, Myopia, Innovation, Firm Value, Productivity, M&A valuation, Integrity, Trust, Ethics, Compliance, Earnings Management
JEL Classification: G3, Z1, D23, G23, G30, K22, M14, O16
Suggested Citation: Suggested Citation