Corporate Culture: Evidence from the Field

98 Pages Posted: 9 Jul 2016 Last revised: 9 Mar 2019

See all articles by John R. Graham

John R. Graham

Duke University; National Bureau of Economic Research (NBER)

Jillian Grennan

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

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Shivaram Rajgopal

Columbia Business School

Multiple version iconThere are 2 versions of this paper

Date Written: March 7, 2019

Abstract

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

Graham, John Robert and Grennan, Jillian and Harvey, Campbell R. and Rajgopal, Shivaram, Corporate Culture: Evidence from the Field (March 7, 2019). 27th Annual Conference on Financial Economics and Accounting Paper; Duke I&E Research Paper No. 2016-33; Columbia Business School Research Paper No. 16-49. Available at SSRN: https://ssrn.com/abstract=2805602 or http://dx.doi.org/10.2139/ssrn.2805602

John Robert Graham

Duke University ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7857 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jillian Grennan

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

Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

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

Shivaram Rajgopal

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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