Measuring Corporate Culture Using Machine Learning

89 Pages Posted: 21 Oct 2018

See all articles by Kai Li

Kai Li

University of British Columbia (UBC) - Sauder School of Business; China Academy of Financial Research (CAFR)

Feng Mai

Stevens Institute of Technology

Rui Shen

Nanyang Technological University (NTU) - Division of Accounting

Xinyan Yan

University of Dayton

Date Written: September 28, 2018

Abstract

Using one of the latest machine learning techniques — the word embedding model (Mikolov et al. 2013) — and 217,387 earnings call transcripts, we obtain five corporate cultural values: innovation, integrity, quality, respect, and teamwork (Guiso, Sapienza, and Zingales 2015) for 77,541 firm-year observations over the period 2001–2018. We conduct a large number of tests to validate our measures and demonstrate the advantages of our approach over several alternative methods. We show that corporate culture plays an important role in deal incidence and merger pairing, and that post-merger, acquirers’ cultural values are positively associated with their target firms’ cultural values pre-merger.

Keywords: machine learning; word embedding; unsupervised learning; corporate culture; cultural fit; acculturation; mergers and acquisitions

JEL Classification: C45; G34

Suggested Citation

Li, Kai and Mai, Feng and Shen, Rui and Yan, Xinyan, Measuring Corporate Culture Using Machine Learning (September 28, 2018). Available at SSRN: https://ssrn.com/abstract=3256608 or http://dx.doi.org/10.2139/ssrn.3256608

Kai Li (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8353 (Phone)
604-822-4695 (Fax)

HOME PAGE: http://finance.sauder.ubc.ca/~kaili

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Feng Mai

Stevens Institute of Technology ( email )

Hoboken, NJ 07030
United States

Rui Shen

Nanyang Technological University (NTU) - Division of Accounting ( email )

Nanyang Business School
Singapore, 639798
Singapore

Xinyan Yan

University of Dayton ( email )

300 College Park
Dayton, OH 45469
United States

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