Corporate Culture

Abstract

Corporate culture is an omnibus term that includes many elements that are relevant to a firm, like norms, values, knowledge, and customs. Economists have made great progress recently in devising methods of measuring different aspects of corporate culture. These empirical measures of culture have explained mergers and acquisitions, corporate risk-taking, and unethical behaviors observed in corporations, among other topics. We argue that unpacking corporate culture into its components is the right way to research it empirically. Theories of corporate culture are still in development, and we discuss the major contributions thus far. We argue that a theory of the firm and of corporate decision-making that is based on corporate culture is more germane to the practical realities of firms’ inner workings than prevailing theories based on property rights and agency costs. Corporate culture has the potential to set the theoretical paradigm for all corporate finance research.