Set in Stone: The Persistence and Origin of Corporate Culture 

Abstract

We examine the evolution and origin of corporate culture, distinguishing between the values and norms that prevail within a company and the individual preferences of corporate insiders. Using one of the largest panel datasets on corporate culture, we first show that culture is remarkably stable: firms with strong (or weak) cultures tend to remain so over the following decade. We then find that most of the variation in corporate culture is explained by time-invariant firm fixed effects, largely attributed to a firm's cultural traits established around the time of its initial public offering. Using a rich set of founder characteristics, we show that a firm's early culture is significantly influenced by its founder's cultural heritage, the racial diversity at her birthplace, and the business environment at the start of her career. Finally, we provide some suggestive evidence that CEO-firm matching on values, along with the treatment of culture on top employees, are potential mechanisms underlying the persistence in corporate culture. We conclude that a firm's early culture-shaped by its founders-together through values-based selection and treatment explain the enduring nature of corporate culture.

Keywords: Corporate Culture, Founders, CEOs, Cultural Heritage, Business Cycles, Racial Diversity, Earnings Calls

JEL Classification: G30, G32, G34, G41, M14