Corporate culture, ethical stimulus, and managerial momentum: Theory and evidence

Abstract

AbstractResearch on organizational culture and ethical decision making has shown that ethical trainings predict and interact with other institutional variables to establish an ethical culture, while other studies suggest that the exposition of moral symbols leads to an increase of individuals' moral awareness. This study examines whether the relation between managerial momentum and fund performance is contingent upon ethical stimuli, team composition and interactions between them. It thus bestows insights to better inform institutional investors (including those working with mutual funds, pension funds, and insurance) about the nature and impact of ethical stimuli, when coupled with managers' momentum and team size, on the prediction of overall return of managed funds. I develop a new measure of managers' momentum termed “managerial momentum” and test our proposed theory and hypotheses using large samples of U.S. and Canadian mutual funds. The evidence reveals that there is sizeable positive effect of both corporate culture with its ethical dimensions and ethical stimulus on the fund performance. Furthermore, there is subtle evidence that both factors divulge additional information about the fund performance, but their effects are conditional on higher managerial momentum or team size, suggesting that managerial momentum alone is not sufficient. However, it is necessary to have the institutional ethical climate and/or managers' continuous ethical training to achieve viable and resilient investment opportunities tailored to the needs of different clienteles.