Corporate Purpose and Financial Performance

Organization Science, 30(1), pp.1-18

164 Pages Posted: 18 Sep 2016 Last revised: 30 Jan 2020

See all articles by Claudine Madras Gartenberg

Claudine Madras Gartenberg

Wharton School, University of Penn

Andrea Prat

Columbia University in the City of New York; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

George Serafeim

Harvard Business School

Date Written: October 9, 2018

Abstract

We construct a measure of corporate purpose within a sample of US companies based on approximately 500,000 survey responses of worker perceptions about their employers. We find that this measure of purpose is not related to financial performance. However, high purpose firms come in two forms: firms characterized by high camaraderie between workers and firms characterized by high clarity from management. We document that firms exhibiting both high purpose and clarity have systematically higher future accounting and stock market performance, even after controlling for current performance, and that this relation is driven by the perceptions of middle management and professional staff rather than senior executives, hourly or commissioned workers. Taken together, these results suggest that firms with mid-level employees with strong beliefs in the purpose of their organization and the clarity in the path towards that purpose experience better performance.

Keywords: corporate purpose, performance, employee engagement, work meaning

JEL Classification: M12, M14, M21, M54, J24

Suggested Citation

Gartenberg, Claudine Madras and Prat, Andrea and Serafeim, George, Corporate Purpose and Financial Performance (October 9, 2018). Organization Science, 30(1), pp.1-18, Available at SSRN: https://ssrn.com/abstract=2840005 or http://dx.doi.org/10.2139/ssrn.2840005

Claudine Madras Gartenberg (Contact Author)

Wharton School, University of Penn ( email )

2035 Steinberg-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States
2158987755 (Phone)

Andrea Prat

Columbia University in the City of New York ( email )

New York
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

George Serafeim

Harvard Business School ( email )

Boston, MA 02163
United States

HOME PAGE: http://www.hbs.edu/faculty/Pages/profile.aspx?facId=15705

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