Measuring Corporate Culture Using Machine Learning

93 Pages Posted: 21 Oct 2018 Last revised: 21 Jan 2020

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

Chinese University of Hong Kong, Shenzhen

Xinyan Yan

University of Dayton

Date Written: February 15, 2019

Abstract

Using one of the latest machine learning techniques—the word embedding model (Mikolov et al. 2013)—and 209,480 earnings call transcripts, we obtain five corporate cultural values: innovation, integrity, quality, respect, and teamwork (Guiso, Sapienza, and Zingales 2015) for 62,664 firm-year observations over the period 2001–2018. We conduct a large number of tests to validate our measure. We show that corporate culture correlates with business outcomes, including operational efficiency, risk-taking, earnings management, executive compensation design, firm value, and deal making. We also present suggestive evidence that corporate culture is shaped by major corporate events such as mergers and acquisitions.

Keywords: machine learning; word embedding; semi-supervised 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 (February 15, 2019). 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 )

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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

Chinese University of Hong Kong, Shenzhen ( email )

Xinyan Yan

University of Dayton ( email )

300 College Park
Dayton, OH 45469
United States

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