The Value of Corporate Culture
TL;DR: In this paper, the authors study which dimensions of corporate culture are related to a firm's performance and why, and they find that proclaimed values appear irrelevant and that when employees perceive top managers as trustworthy and ethical, firm’s performance is stronger.
Abstract: We study which dimensions of corporate culture are related to a firm’s performance and why. We find that proclaimed values appear irrelevant. Yet, when employees perceive top managers as trustworthy and ethical, firm’s performance is stronger. We then study how different governance structures impact the ability to sustain integrity as a corporate value. We find that publicly traded firms are less able to sustain it. Traditional measures of corporate governance do not seem to have much of an impact.
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TL;DR: This paper found that firms with high social capital, measured as corporate social responsibility (CSR) intensity, had stock returns that were four to seven percentage points higher than firms with low social capital during the 2008-2009 financial crisis.
Abstract: During the 2008-2009 financial crisis, firms with high social capital, measured as corporate social responsibility (CSR) intensity, had stock returns that were four to seven percentage points higher than firms with low social capital. High-CSR firms also experienced higher profitability, growth, and sales per employee relative to low-CSR firms, and they raised more debt. This evidence suggests that the trust between the firm and both its stakeholders and investors, built through investments in social capital, pays off when the overall level of trust in corporations and markets suffers a negative shock.
1,467 citations
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TL;DR: This paper found that firms with high social capital, measured as corporate social responsibility (CSR) intensity, had stock returns that were four to seven percentage points higher than firms with low social capital during the 2008-2009 financial crisis.
Abstract: During the 2008-2009 financial crisis, firms with high social capital, measured as corporate social responsibility (CSR) intensity, had stock returns that were four to seven percentage points higher than firms with low social capital. High-CSR firms also experienced higher profitability, growth, and sales per employee relative to low-CSR firms, and they raised more debt. This evidence suggests that the trust between the firm and both its stakeholders and investors, built through investments in social capital, pays off when the overall level of trust in corporations and markets suffers a negative shock.
357 citations
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TL;DR: In this paper, the authors examine how Corporate Social Responsibility (CSR) jointly with influential institutional ownership (IO) affects firm value around the 2008 global financial crisis and find that the effect of CSR on firm value varies with the level of influential institutional owners and depends upon economic conditions.
231 citations
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TL;DR: The authors found that firms with high corruption culture are more likely to engage in earnings management, accounting fraud, option backdating, and opportunistic insider trading, and further explore the inner workings of corruption culture and find evidence that it operates both as a selection mechanism and by having a direct influence on individual behavior.
Abstract: Despite significant interest in corporate culture, there is little empirical research on its role in influencing corporate misconduct. Using cultural background information on key company insiders, I construct a measure of corporate corruption culture, capturing a firm’s general attitude toward opportunistic behavior. Firms with high corruption culture are more likely to engage in earnings management, accounting fraud, option backdating, and opportunistic insider trading. I further explore the inner workings of corruption culture and find evidence that it operates both as a selection mechanism and by having a direct influence on individual behavior.
220 citations
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TL;DR: In this article, a model for effective boundary spanning in global organizations is proposed and a limited understanding of the factors that affect the complexity and effectiveness of the boundary spanning function is provided.
Abstract: Global organizations are inherently complex. The spatial dispersion of activities results in organizational subunits becoming embedded in local host-country contexts that differ from their parents’ home country contexts. These subunits are also embedded in their parents’ corporate networks, causing them to differ from their locally embedded peers. The dual embeddedness and associated complexities create complex and often implicit boundaries. In addition, the contextual and operational diversity that affects the boundaries in global organizations are continually changing. Hence managing and coordinating across different inter- and intra-organizational boundaries has emerged as an important capability for the success of global organizations. So far, we have a limited understanding of the factors that affect the complexity and effectiveness of the boundary spanning function. In this article, we focus on clarifying these key issues and propose a model for effective boundary spanning in global organizations.
213 citations
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TL;DR: The authors surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world, and presents a survey of the literature.
Abstract: This paper surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world.
13,489 citations
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TL;DR: In this paper, a theory of costly contracts is presented, which emphasizes the contractual rights can by of two types: specific rights and residual rights, and when it is costly to list all specific rights over assets, it may be optimal to let one party purchase all residual rights.
Abstract: Our theory of costly contracts emphasizes the contractual rights can by of two types: specific rights and residual rights. When it is costly to list all specific rights over assets in the contract, it may be optimal to let one party purchase all residual rights. Ownership is the purchase of these residual rights. When residual rights are purchased by one party, they are lost by a second party, and this inevitably creates distortions. Firm 1 purchases firm 2 when firm 1's control increases the productivity of its management more than the loss of control decreases the productivity of firm 2's management.
8,850 citations
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01 Sep 1990
TL;DR: In this paper, the authors explore how an economic theorist might explain or model a concept such as corporate culture and conclude that economic theory is moving in the direction of what seems a reasonable story.
Abstract: INTRODUCTION In this chapter, I explore how an economic theorist might explain or model a concept such as corporate culture. While the theoretical construction that is given is far from inclusive (which is to say that many aspects of corporate culture are not covered), I conclude that economic theory is moving in the direction of what seems a reasonable story. But before that story can be considered told, we must employ tools that are currently missing from the economist's tool kit. In particular, we require a framework for dealing with the unforeseen. I can give two explanations for why I present this topic. The first concerns how economists (and those weaned on the economic paradigm) deal with the topic of business strategy. If we take Porter (or Caves or Spence) as the prototype, business strategy could roughly be called applied industrial organization. The firm and its capabilities are more or less taken as givens, and one looks at the tangible characteristics of an industry to explain profitability. It sometimes seems, in this approach, that there are good industries (or segments of industries) and bad: Find yourself in a bad industry (low entry barriers, many substitutes, powerful customers and suppliers, many and surly competitors), and you can do nothing except get out at the first opportunity. Now, this is assuredly a caricature of the Porter approach. The size of entry barriers, relations with suppliers/customers, and, especially, competitive discipline within an industry are all at least partially endogenous.
2,059 citations
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TL;DR: In a study made in 1915 of employees of two large industrial corporations, it appeared that the estimates of the same man in a number of different traits such as intelligence, industry, technical skill, reliability, etc., etc, were very highly correlated and very evenly correlated.
Abstract: In a study made in 1915 of employees of two large industrial corporations, it appeared that the estimates of the same man in a number of different traits such as intelligence, industry, technical skill, reliability, etc., etc, were very highly correlated and very evenly correlated. It consequently appeared probable that those giving the ratings were unable to analyze out these different aspects of the person's nature and achievement and rate each in independence of the others Their ratings were apparently affected by a marked tendency to think of the person in general as rather good or rather inferior and to color the judgments of the qualities by this general feeling This same constant error toward suffusing ratings of special features with a halo belonging to the individual a's a whole appeared in the ratings of officers made by their superiors in the army. The official rating plan devised by Walter Dill Scott called for separate ratings for Physical Qualities, Intelligence, Leadership and Personal Qualities (i. e. Character) The instructions very emphatically required each of these four to be estimated independently of the others, as appears from the directions quoted below. Yet the correlations of the Intelligence rating with the ratings for Physique, Leadership and Character made by a very conscientious officer in the case of 137 aviation cadets whose work he, as flight commander, supervised, were .51, .58 and .64 respectively. These are all higher than reality, plus the attenuation due to erroneous judgments, could well give, especially within the restricted range of the commissioned-officer group. They are also too much alike. In reality Intelligence and Character or Intelligence and Leadership should give about three times as close a correlation as Intelligence and Physique
1,720 citations
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TL;DR: The authors empirically analyzes the determinants of an initial public offering (IPO) and the consequences of this decision on a company's investment and financial policy, finding that IPOs are followed by an abnormal reduction in profitability, the new equity capital raised upon listing is not used to finance subsequent investment and growth, but to reduce leverage.
Abstract: This paper empirically analyzes the determinants of an initial public offering (IPO) and the consequences of this decision on a company's investment and financial policy. We compare both the ex ante and the ex post characteristics of IPOs with those of a large sample of privately held companies of similar size. We find that (i) the likelihood of an IPO is positively related to the market-to-book ratio prevailing in the relevant industrial sector and to a company's size, (ii) IPOs are followed by an abnormal reduction in profitability, (iii) the new equity capital raised upon listing is not used to finance subsequent investment and growth, but to reduce leverage, (iv) going public reduces the cost of bank credit; (v) it is often associated by equity sales by controlling shareholders, and is followed by a higher turnover of control than for other companies.
1,632 citations