Corporate Culture and Firm Value: Evidence from Crisis

We score 10-K text to measure company culture in four dimensions (collaborative, controlling, competitive, and creative). Investigating culture’s role in stability, firms with higher controlling culture fared significantly better during the 2008-09 crisis. The results are robust to alternative crisis episodes and further endogeneity tests. Such positive effect is more evident during bad than normal times. Due to persistence, culture measured up to 10 years prior still predicts returns during the crisis. Finally, firms with stronger controlling culture experienced fewer layoffs, smaller investment cuts, and greater debt issuance. Overall, the controlling culture improves firm stability through reduced capital constraints.