Hostname: page-component-586b7cd67f-rdxmf Total loading time: 0 Render date: 2024-11-23T11:16:34.289Z Has data issue: false hasContentIssue false
  • English
  • Français

The Role of Corporate Culture in Bad Times: Evidence from the COVID-19 Pandemic

Published online by Cambridge University Press:  14 June 2021

Kai Li Open the ORCID record for Kai Li [Opens in a new window] ,
Xing Liu ,
Feng Mai  and
Tengfei Zhang
Kai Li*
Affiliation:
University of British Columbia Sauder School of [email protected]
Xing Liu
Affiliation:
University of British Columbia Sauder School of [email protected]
Feng Mai
Affiliation:
Stevens Institute of Technology School of [email protected]
Tengfei Zhang
Affiliation:
Louisiana State University E. J. Ourso College of [email protected]
*
[email protected] (corresponding author)
Get access Rights & Permissions [Opens in a new window]

Abstract

After fitting a topic model to 40,927 COVID-19–related paragraphs in 3,581 earnings calls over the period Jan. 22–Apr. 30, 2020, we obtain firm-level measures of exposure and response related to COVID-19 for 2,894 U.S. firms. We show that despite the large negative impact of COVID-19 on their operations, firms with a strong corporate culture outperform their peers without a strong culture. Moreover, these firms are more likely to support their community, embrace digital transformation, and develop new products than those peers. We conclude that corporate culture is an intangible asset designed to meet unforeseen contingencies as they arise.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 7: JFQA Symposium on the Consequences of the COVID-19 Pandemic for Firms and Capital Markets , November 2021 , pp. 2545 - 2583
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We thank the special issue editors Ran Duchin and Jarrad Harford; Elroy Dimson, Kevin Gao, Jason Gong, Mark Grinblatt, Qiang Kang, Oguzhan Karakas, Jon Karpoff, Bart Lambrecht, Raghu Rau, Qinzheng Xu, and Chendi Zhang; conference participants at the First Annual Canadian Sustainable Finance Network (CSFN) Conference; and seminar participants at Central University of Finance and Economics, Florida International University, Microsoft Research NYC, University of Cambridge, the Journal of Financial and Quantitative Analysis (JFQA) COVID-19 Symposium, and the Corporate Finance Workshop for their helpful comments. We acknowledge financial support from the Social Sciences and Humanities Research Council of Canada (Grant 435-2018-0037) and the Sauder Exploratory Research Grants Program. All errors are our own.

References

Albuquerque, R.; Koskinen, Y.; Yang, S.; and Zhang, C.. “Resiliency of Environmental and Social Stocks: An Analysis of the Exogenous COVID-19 Market Crash.” Review of Corporate Finance Studies, 9 (2020), 593–621.CrossRefGoogle Scholar
Albuquerque, R.; Koskinen, Y.; and Zhang, C.. “Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence.” Management Science , 65 (2019), 4451–4469.CrossRefGoogle Scholar
Asness, C. S.; Moskowitz, T. J.; and Pedersen, L. H.. “Value and Momentum Everywhere.” Journal of Finance , 68 (2013), 929–985.CrossRefGoogle Scholar
Bae, K. H.; El Ghoul, S.; Gong, J.; and Guedhami, O.. “Does CSR Matter in Times of Crisis? Evidence from the COVID-19 Pandemic.” Journal of Corporate Finance, 67 (2021), 101876.CrossRefGoogle Scholar
Bénabou, R., and Tirole, J.. “Intrinsic and Extrinsic Motivation.” Review of Economic Studies, 70 (2003), 489–520.CrossRefGoogle Scholar
Berger, P., and Luckmann, T.. The Social Construction of Reality: A Treatise in the Sociology of Knowledge. New York, NY: Doubleday (1967).Google Scholar
Bernile, G.; Kumar, A.; and Sulaeman, J.. “Home away from Home: Geography of Information and Local Investors.” Review of Financial Studies, 28 (2015), 2009–2049.CrossRefGoogle Scholar
Blei, D. M. “Probabilistic Topic Models.” Communication of the ACM, 55 (2012), 77–84.CrossRefGoogle Scholar
Blei, D. M., and Lafferty, J. D.. “A Correlated Topic Model of Science.” Annals of Applied Statistics, 1 (2007), 17–35.Google Scholar
Blei, D. M; Ng, A. Y.; and Jordan, M. I.. “Latent Dirichlet Allocation.” Journal of Machine Learning Research, 3 (2003), 993–1022.Google Scholar
Carhart, M. M. “On Persistence in Mutual Fund Performance.” Journal of Finance, 52 (1997), 57–82.CrossRefGoogle Scholar
Chang, J.; Gerrish, S.; Wang, C.; Boyd-Graber, J.; and Blei, D. M.. “Reading Tea Leaves: How Humans Interpret Topic Models.” Advances in Neural Information Processing Systems, 32 (2009), 288–296.Google Scholar
Chetty, R.; Friedman, J. N.; Hendren, N.; Stepner, M.; and the Opportunity Insights Team. “The Economic Impacts of COVID-19: Evidence from a New Public Database Built Using Private Sector Data.” Working Paper, Harvard University (2020).CrossRefGoogle Scholar
Cremer, J. “Corporate Culture and Shared Knowledge.” Industrial and Corporate Change, 2 (1993), 351–386.Google Scholar
Daniel, K., and Titman, S.. “Evidence on the Characteristics of Cross-Sectional Variation in Stock Returns.” Journal of Finance, 52 (1997), 1–33.CrossRefGoogle Scholar
Dingel, J. I., and Neiman, B.. “How Many Jobs Can Be Done at Home?” Journal of Public Economics [Special Issue on the Public Economics of COVID-19], 189 (2020), 1–8.Google ScholarPubMed
Dunlop, J. T. “The Task of Contemporary Wage Theory.” In The Theory of Wage Determination, Dunlop, J. T., ed. London, England: Macmillan and Co. (1957).CrossRefGoogle Scholar
Edmans, A. “Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices.” Journal of Financial Economics, 101 (2011), 621–640.CrossRefGoogle Scholar
Fahlenbrach, R.; Rageth, K.; and Stulz, R. M.. “How Valuable Is Financial Flexibility When Revenue Stops? Evidence from the COVID-19 Crisis.” Review of Financial Studies, forthcoming (2021).CrossRefGoogle Scholar
Fama, E. F., and French, K. R.. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics, 33 (1993), 3–56.CrossRefGoogle Scholar
Graham, J. R.; Grennan, J.; Harvey, C. R.; and Rajgopal, S.. “Corporate Culture: Evidence from the Field.” Working Paper, Duke University (2019).Google Scholar
Guiso, L.; Sapienza, P.; and Zingales, L.. “The Value of Corporate Culture.” Journal of Financial Economics, 117 (2015), 60–76.CrossRefGoogle Scholar
Harris, Z. S. “Distributional Structure.” Word, 10 (1954), 146–162.CrossRefGoogle Scholar
Hassan, T. A.; Hollander, S.; van Lent, L.; Schwedeler, M.; and Tahoun, A.. “Firm-Level Exposure to Epidemic Diseases: COVID-19, SARS, and H1N1.” Working Paper, Boston University (2020).CrossRefGoogle Scholar
Henderson, R. and Van den Steen, E. “Why Do Firms Have ‘Purpose’? The Firm’s Role as a Carrier of Identity and Reputation.” American Economic Review, 105 (2015), 326–330.CrossRefGoogle Scholar
Hoberg, G., and Moon, S. K.. “Offshore Activities and Financial vs Operational Hedging.” Journal of Financial Economics , 125 (2017), 217–244.CrossRefGoogle Scholar
Huang, A. H.; Lehavy, R.; Zang, A. Y.; and Zheng, R.. “Analyst Information Discovery and Interpretation Roles: A Topic Modeling Approach.” Management Science , 64 (2018), 2473–2972.CrossRefGoogle Scholar
Katz, L. F. “Efficiency Wage Theories: A Partial Evaluation.” In NBER Macroeconomics Annual Vol. 1, Fischer, S., ed. Chicago, IL: University of Chicago Press (1986).Google Scholar
Kreps, D. “Corporate Culture and Economic Theory.” In Perspectives on Positive Political Economy, Alt, J. E. and Shepsle, K. A., eds. Cambridge, UK: Cambridge University Press (1990).Google Scholar
Lazear, E. P. “Corporate Culture and the Diffusion of Values.” In Trends in Business Organization: Do Participation and Cooperation Increase Competitiveness? Siebert, H., ed. Tübingen, Germany: J. C. B. Mohr (1995).Google Scholar
Li, K.; Mai, F.; Shen, R.; and Yan, X.. “Measuring Corporate Culture Using Machine Learning.” Review of Financial Studies, 34 (Special Issue: Big Data in Finance) (2021), 3265–3315.CrossRefGoogle Scholar
Lins, K. V.; Servaes, H.; and Tamayo, A.. “Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility During the Financial Crisis.” Journal of Finance, 72 (2017), 1785–1824.CrossRefGoogle Scholar
Loughran, T., and McDonald, B.. “When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10-Ks.” Journal of Finance, 66 (2011), 35–65.CrossRefGoogle Scholar
Luo, X., and Bhattacharya, C. B.. “Corporate Social Responsibility, Customer Satisfaction, and Market Value.” Journal of Marketing, 70 (2006), 1–18.CrossRefGoogle Scholar
Manning, C. D.; Surdeanu, M.; Bauer, J.; Finkel, J.; Bethard, S. J.; and McClosky, D.. “The Stanford CoreNLP Natural Language Processing Toolkit.” Proceedings of the 52nd Annual Meeting of the Association for Computational Linguistics: System Demonstrations, Bontcheva, K. and Zhu, J., eds. Baltimore, MD: Association for Computational Linguistics (2014).Google Scholar
Mikolov, T.; Sutskever, I.; Chen, K.; Corrado, G. S.; and Dean, J.. “Distributed Representations of Words and Phrases and Their Compositionality.” Advances in Neural Information Processing Systems, 2 (2013), 3111–3119.Google Scholar
O’Reilly, C. “Corporations, Culture, and Commitment: Motivation and Social Control in Organizations.” California Management Review, 31 (1989), 9–25.CrossRefGoogle Scholar
O’Reilly, C., and Chatman, J. A.. “Culture as Social Control: Corporations, Cults, and Commitment.” In Research in Organizational Behavior Vol. 18 , Staw, B. M. and Cummings, L. L., eds. Greenwich, CT: JAI Press (1996).Google Scholar
Oswald, A.; Proto, E.; and Sgroi, D.. “Happiness and Productivity.” Journal of Labor Economics, 33 (2015), 789–822.CrossRefGoogle Scholar
Pagano, M.; Wagner, C.; and Zechner, J.. “Disaster Resilience and Asset Prices.” Working Paper, University of Naples Federico II (2020).CrossRefGoogle Scholar
Ramelli, S., and Wagner, A. F.. “Feverish Stock Price Reactions to COVID-19.” Review of Corporate Finance Studies, 9 (2020), 622–655.CrossRefGoogle Scholar
Reynolds, L. Labor Economics and Labor Relations , 7th ed. Englewood Cliffs, NJ: Prentice Hall (1978).Google Scholar
Roberts, M. E.; Stewart, B. M.; and Airoldi, E. M.. “A Model of Text for Experimentation in the Social Sciences.” Journal of the American Statistical Association, 111 (2016), 988–1003.CrossRefGoogle Scholar
Roberts, M. E.; Stewart, B. M.; and Tingley, D.. “stm: R Package for Structural Topic Models.” Journal of Statistical Software, 10 (2019), 1–40.Google Scholar
Servaes, H., and Tamayo, A.. “The Impact of Corporate Social Responsibility on the Value of the Firm: The Role of Customer Awareness.” Management Science , 59 (2013), 1045–1061.CrossRefGoogle Scholar
Stiglitz, J. “Theories of Wage Rigidities.” In Keynes’ Economic Legacy: Contemporary Economic Theories, Butkiewicz, J. L., Koford, K. J., and Miller, J. B., eds. New York, NY: Praeger (1986).Google Scholar
Van den Steen, E. “Organizational Beliefs and Managerial Vision.” Journal of Law, Economics, and Organization, 21 (2005), 256–283.CrossRefGoogle Scholar
Van den Steen, E. “On the Origin of Shared Beliefs (and Corporate Culture).” RAND Journal of Economics, 41 (2010), 617–648.CrossRefGoogle Scholar
Zingales, L. “In Search of New Foundations.” Journal of Finance, 55 (2000), 1623–1653.CrossRefGoogle Scholar
Supplementary material: PDF

Li et al. supplementary material

Li et al. supplementary material

Download Li et al. supplementary material(PDF)
PDF 574.2 KB