Measuring Corporate Culture Using Machine Learning
93 Pages Posted: 21 Oct 2018 Last revised: 21 Jan 2020
Date Written: February 15, 2019
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: Suggested Citation