Saturday, Jan. 7, 2017 1:00 PM – 3:00 PM
- Chair: Christopher Parsons, University of California-San Diego
Integrity Culture and Analyst Forecast Quality
AbstractThis study examines the relationship between financial institutions’ integrity culture and analysts’ forecast accuracy. Integrity culture represents the extent to which norms and values within a financial institution promote high ethical standards and honesty. Using data collected from the Financial Industry Regulatory Authority (FINRA), I measure the weakness of integrity culture in financial institutions based on security code violations arising in business areas unrelated to equity research. I find that FINRA violations are associated with lower quality forecasts, and that these results are robust to a host of alternative explanations, including poor internal controls, weak governance, and other cultural forces. Specifically, violations are associated with less accurate, more strategically biased and less informative earnings forecasts. This study sheds light on how cultural forces can influence the behavior of security analysts.
A Clash of Cultures: The Governance and Valuation Effects of Multiple Corporate Cultures
AbstractThis study investigates the effect of multiple corporate cultures on governance and valuation with the firm. Estimating cultural distance measures between the CEO and the board and between the CEO and stakeholders, we find significant effects on both CEO turnover and firm values. We find that increased cultural distance is associated with greater CEO turnover, but also with higher firm values. These findings are consistent with the view that greater cultural distance between a CEO and the board results in less empathy and acceptance. But it also stimulates greater monitoring and increased firm value. We also discover a cultural persistence in the hiring of successor CEOs with 89.8% of our sample CEOs replaced by culturally identical individuals.
Corporate Culture: Evidence From the Field
AbstractWe use interviews and a novel survey tool to study corporate culture at more than 1,300 North American firms. More than 90% of executives believe that culture is important or very important at their firms and 92% believe improving culture would increase firm value. Only 16% believe their firm's culture is exactly where it should be. Executives link culture to ethical choices (including compliance and short-termism), innovation (creativity, taking on appropriate business risk), and value creation (productivity, acquisition premia) at their firms. We study these issues within a framework that implies that the effectiveness of corporate culture is determined not just by stated cultural values but also by whether employees act according to social norms that are consistent with the values, and whether formal institutions such as governance reinforce the values. Key cultural values include integrity, collaboration, and adaptability.
- G3 - Corporate Finance and Governance