The Elusive Concept of Corporate Culture

14 March 2007 at 11:27 pm 6 comments

| Peter Klein |

Corporate culture, like pornography, is difficult to define, but perhaps easy to recognize. Attitudes, beliefs, ways of solving problems — “cognitive frames,” if you prefer a fancy term — seem to differ among organizations, and to affect performance and characteristics. But a scientific explanation of corporate culture has proved elusive. Economists, in particular, have not gotten much past the analysis in Kreps’s 1986 paper “Corporate Culture and Economic Theory,” despite important contributions from Crémer (1993), Lazear (1995), and Hermalin (1998). (Ben Hermalin provides a nice summary of the literature here, and George Akerlof and Rachael Kranton provide some related discussion here.) Certainly there has been little empirical work on the economics of corporate culture.

So I was pleased to see this paper by Henrik Cronqvist, Angie Low, and Mattias Nilsson, “Does Corporate Culture Matter for Firm Policies?” The paper takes the Forrest Gump approach (which I’ve advocated elsewhere) that “corporate culture is what corporate culture does.” In other words, rather than try to define it, treat it as a latent concept and look for its effects. From the abstract:

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.

This strikes me as a fruitful approach. Culture is treated as a residual, like Solow’s (1957) treatment of technological change. Of course, the drawback is that culture itself remains a black box. But perhaps this is the best economic analysis can do.

Entry filed under: - Klein -, Management Theory.

Management Journal Impact Factors 2005 New JC Spender Essay

6 Comments Add your own

  • […] post by Peter Klein and a wordpress plugin by […]

  • 2. JC  |  18 March 2007 at 7:30 am

    Hmm … how odd to see economists, especially of the rational variety, trying to theorize about leadership.

    What about:

    Barney, J. B. (1986). Organizational Culture: Can it be a Source of Competitive Advantage? Academy of Management Review, 11, 656-665.

  • 3. Brian A'Hearn  |  18 March 2007 at 10:18 am

    They probably don’t use the phrase “corporate culture”, but I think there are productivity studies of firms that start up new operations abroad that would offer some insight. I know there are studies of Japanese plants in various European countries, for example. I suppose it’s an experiment like the spin-off one you describe, but one where it’s really only the corporate culture, and not the broader culture in which it is “embedded” that might be the same.

  • 4. Marcin Tustin  |  27 March 2007 at 12:32 pm

    Having identified the transmission/propagation mechanism, it might be fruitful to actually interview management about their selection process for new management. That might then give a clue to the cultural elements that they look for. This will of course be incomplete, as procedures and processes may be unspoken, (although written down), and be hallowed by time.

  • 5. Bruce’s Blog / links for 2007-04-07  |  6 April 2007 at 7:32 pm

    […] The Elusive Concept of Corporate Culture « Organizations and Markets Economists, in particular, have not gotten much past the analysis in Kreps’s 1986 paper ”Corporate Culture and Economic Theory,” despite important contributions from Crémer (1993), Lazear (1995), and Hermalin (1998). (Ben Hermalin provides a nice s (tags: business culture economics science research values academics) […]

  • 6. 4 Steps to Better Culture (1 of 2)  |  7 January 2012 at 8:09 pm

    […] The Elusive Concept of Corporate Culture « Organizations and … – The Elusive Concept of Corporate Culture. 14 March 2007 at 11:27 pm Peter Klein 5 comments. | Peter Klein |. Corporate culture, like pornography, is difficult to define, but perhaps easy to recognize. Attitudes, beliefs, ways of … […]

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Trackback this post  |  Subscribe to the comments via RSS Feed


Nicolai J. Foss | home | posts
Peter G. Klein | home | posts
Richard Langlois | home | posts
Lasse B. Lien | home | posts


Former Guests | posts


Recent Posts



Our Recent Books

Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).

%d bloggers like this: