Culture and Firms

73 Pages Posted: 22 Apr 2022

See all articles by Gu Zhihui

Gu Zhihui

Nankai University - Business School

Hao Liang

Singapore Management University - Lee Kong Chian School of Business; European Corporate Governance Institute (ECGI)

Hanyu Zhang

Singapore Management University.

Date Written: April 1, 2022


We study how societal culture shapes business activities and corporate behavior by leveraging data on the locations of Confucian schools in Ancient China. The number of historic Confucian schools surrounding a current firm’s location proxies for the firm’s exposure to Confucianism, the dominant culture in China over the last two thou- sand years, and is immune to the subjectivity and selection problems of most culture measures. We find systematic differences in corporate behavior across regions based on their varying exposure to Confucianism. Listed companies more exposed Confucianism make greater social contributions, provide greater employee protection, and have higher entertainment expenses, more patents, and more trade credits. We argue that these corporate attributes match the five basic virtues of Confucianism: benevolence (Ren), righteousness (Yi ), courteousness (Li ), wisdom (Zhi ), and trustworthiness (Xin). Our results cannot be explained by other cultural traits and are robust to various checks, including using the number of renowned Confucian scholars in the Ming Dynasty and the regional death rate in the Taiping Rebellion as instrumental variables. The effects are weaker in cities with Mao-indoctrinated leaders (whose ideology suppresses Confucianism) and high levels of market-orientation and in firms with non-Chinese directors on board. Stronger Confucianism is associated with greater profitability and growth.

Keywords: Culture, Corporate behavior, Confucianism, Firm Value

JEL Classification: G30, L11, L21, M14, N15

Suggested Citation

Zhihui, Gu and Liang, Hao and Zhang, Hanyu, Culture and Firms (April 1, 2022). European Corporate Governance Institute – Finance Working Paper No. 822/2022, Available at SSRN: or

Gu Zhihui

Nankai University - Business School ( email )

Weijin Road no.94
Tianjin 300071, 300071

Hao Liang (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409


European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Hanyu Zhang

Singapore Management University. ( email )


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