Should Investors Care About Corporate Culture?
In this episode, hosts Kate Holland and Veljko Fotak delve into the significance of corporate culture and its impact on firm performance and investor portfolios. They discuss the struggle to measure corporate culture, using examples like Steve Jobs at Apple where storytelling helped create an innovative environment. The conversation extends to whether cultural aspects of respect, integrity, teamwork, innovation, and quality influence profitability. They explore research linking corporate culture with stock returns, fraud prevention, and adaptability. The discussion also covers the influence of societal culture on corporate behavior and how factors like regulatory changes and leadership shifts affect corporate culture. They conclude by suggesting that investors should be cautious of firms showing reduced innovation, high-risk cultures, or inconsistent communication of their corporate values.
Timeline:
00:00 Culture, Stories, and Shared Beliefs
06:37 Welcome to Questions in Finance
07:15 Defining Corporate Culture
12:32 Corporate Culture and Intangible Assets
23:44 Country-level Cultural Traits and Corporate Culture
31:36 Changing Corporate Culture
36:37 Strategic Communication of Cultural Values
46:07 Corporate Culture and Firm Performance
51:27 Fraudulent Firms and Market Penalties
59:32 Risk Culture in Banks
01:02:43 Parking Tickets
01:11:16 Measuring Corporate Culture
01:14:31 Culture Examples: Skechers, Nike, Kodak, Xerox, Sony and More...
01:27:03 Summary & Goodbye!
Bibliography:
Acemoglu, Daron, and Matthew O. Jackson. "History, expectations, and leadership in the evolution of social norms." The Review of Economic Studies 82, no. 2 (2015): 423-456.
Biggerstaff, Lee, David C. Cicero, and Andy Puckett. "Suspect CEOs, unethical culture, and corporate misbehavior." Journal of Financial Economics 117, no. 1 (2015): 98-121.
Braguinsky, Serguey, and Sergey Mityakov. "Foreign corporations and the culture of transparency: Evidence from Russian administrative data." Journal of Financial Economics 117 (2015): 139-164.
Chamberlain, Andrew. "Does company culture pay off? Analyzing stock performance of 'Best Places to Work' companies." Glassdoor Research Report (2015).
Crémer, Jacques. "Corporate culture and shared knowledge." Industrial and Corporate Change 2, no. 3 (1993): 351-386.
Edmans, Alex. "Does the stock market fully value intangibles? Employee satisfaction and equity prices." Journal of Financial Economics 101, no. 3 (2011): 621-640.
Lev, Baruch, and Feng Gu. The end of accounting and the path forward for investors and managers. John Wiley & Sons, 2016.
Fahlenbrach, Rüdiger, Robert Prilmeier, and René M. Stulz. "Why does fast loan growth predict poor performance for banks?." The Review of Financial Studies 31, no. 3 (2018): 1014-1063.
Fotak, Veljko, Feng Jack Jiang, Haekwon Lee, and Erik Lie. "Trust and debt contracting: Evidence from the backdating scandal." Journal of Financial and Quantitative Analysis 58, no. 2 (2023): 615-646.
Fisman, Raymond, and Edward Miguel. " Corruption, norms, and legal enforcement: Evidence from diplomatic parking tickets," Journal of Political Economy 115, no. 6, (2007): 1020-1048
Graham, John R., Jillian Grennan, Campbell R. Harvey, and Shivaram Rajgopal. "Corporate culture: Evidence from the field." Journal of Financial Economics 146, no. 2 (2022): 552-593.
Green, T. Clifton, Ruoyan Huang, Quan Wen, and Dexin Zhou. "Crowdsourced employer reviews and stock returns." Journal of Financial Economics 134, no. 1 (2019): 236-251.
Grennan, Jillian. "Communicating culture consistently: Evidence from banks." Available at SSRN 3350645 (2022).
Grullon, Gustavo, George Kanatas, and James Weston. "Religion and corporate (mis) behavior." Available at SSRN 1472118 (2009).
Guiso, Luigi, Paola Sapienza, and Luigi Zingales. "The value of corporate culture." Journal of Financial Economics 117, no. 1 (2015): 60-76.
Hilary, Gilles, and Kai Wai Hui. "Does religion matter in corporate decision making in America?." Journal of Financial Economics 93, no. 3 (2009): 455-473.
Hofstede, Geert. "Dimensionalizing cultures: The Hofstede model in context." Online Readings in Psychology and Culture 2, no. 1 (2011): 8.
Holland, Kateryna, and Esther Im. "Corporate culture messaging and national politics." Available at SSRN 4810373 (2024).
Jiang, Feng, Kose John, C. Wei Li, and Yiming Qian. "Earthly reward to the religious: religiosity and the costs of public and private debt." Journal of Financial and Quantitative Analysis 53, no. 5 (2018): 2131-2160.
Karolyi, G. Andrew, and Alvaro G. Taboada. "Regulatory arbitrage and cross‐border bank acquisitions." The Journal of Finance 70, no. 6 (2015): 2395-2450.
Li, Kai, Mai Feng, Rui Shen, and Xinyan Yan. "Measuring corporate culture using machine learning." The Review of Financial Studies 34, (2021): 3265-3315.
Lins, Karl V., Lukas Roth, Henri Servaes, and Ane Tamayo. "Sexism, culture, and firm value: evidence from the Harvey Weinstein scandal and the# MeToo movement." Journal of Accounting Research 62, no. 5 (2024): 1989-2035.
Mironov, Maxim. "Should one hire a corrupt CEO in a corrupt country?" Journal of Financial Economics 117 (2015): 29-42.
Symitsi, Efthymia, Panagiotis Stamolampros, and George Daskalakis. "Employees’ online reviews and equity prices." Economics Letters 162 (2018): 53-55.
Online Sources:
Sull, Donald, Charles Sull, and Andrew Chamberlain. "Measuring Culture in Leading Companies"
https://sloanreview.mit.edu/projects/measuring-culture-in-leading-companies/#chapter-5
Soundtrack:
The soundtrack is based on "Walk on a Funky Street" by MondayHopes. Thanks for the music and keep up the good work! Use is under the Pixabay Content License.