SIFR Research Report Series, Institute for Financial Research
Does Corporate Culture Matter for Firm Policies?
(), Angie Low and Mattias Nilsson
Abstract: Economic theories suggest that a firm's corporate culture
matters for its policy choices. We construct a parent-spinoff firm panel
dataset that allows us to identify culture effects in firm policies from
behavior that is inherited by a spinoff firm from its parent after the
firms split up. We find positive and significant relations between spinoff
firms' and their parents' choices of investment, financial, and operational
policies. Consistent with predictions from economic theories of corporate
culture, we find that the culture effects are long-term and stronger for
internally grown business units and older firms. Our evidence also suggests
that firms preserve their cultures by selecting managers who fit into their
cultures. Finally, we find a strong relation between spinoff firms' and
their parents' profitability, suggesting that corporate culture ultimately
also affects economic performance. These results are robust to a series of
robustness checks, and cannot be explained by alternatives such as
governance or product market links. The contribution of this paper is to
introduce the notion of corporate culture in a formal empirical analysis of
firm policies and performance.
Keywords: Economics of corporate culture; firm policies; firm performance; (follow links to similar papers)
JEL-Codes: G32; G34; G35; L22; L25; Z10; (follow links to similar papers)
48 pages, February 15, 2007
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