Unintended Consequences of a Creative Corporate Culture: An Empirical Investigation
62 Pages Posted: 18 Aug 2018 Last revised: 8 Dec 2018
Date Written: December 7, 2018
While firm managers emphasize the importance of establishing a culture of creativity in hopes that such a climate will lead to successful new products and/or services, recent literature finds creativity also promotes opportunistic behavior. Two recent experimental studies suggest two different reasons for this finding. On the one hand, recent psychological evidence shows creativity promotes individuals’ self-serving rationalizations to convince themselves that their behavior is acceptable (the “rationalization channel”). On the other hand, contemporaneous research suggests individuals in a creative environment have a preference for accepting greater risk in decision-making, which leads to self-interested behavior (the “risk-taking channel”). We complement experimental evidence by using survey and archival data to show that a creative corporate culture is positively associated with financial misconduct. In addition, our findings provide stronger support for the rationalization channel. Taking advantage of our archival setting, we further extend experimental findings by showing that 1) external monitoring costs of a creative culture firm are high, as indicated by higher audit fees and 2) despite the potential negative effects, the net effects of a creative corporate culture are positive, as indicated by firm value and future performance.
Keywords: creativity, corporate culture, fraud triangle
JEL Classification: M14, M41
Suggested Citation: Suggested Citation