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The Relationship between Corporate Culture and Value at Different Life Cycle Stages

Sung Ook Park, Seung Uk Choi, Seong Tae Kim and Hyung Jong Na
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Sung Ook Park: School of Management, Kyung Hee University, Seoul 02447, Korea
Seung Uk Choi: School of Management, Kyung Hee University, Seoul 02447, Korea
Seong Tae Kim: School of Management, Kyung Hee University, Seoul 02447, Korea
Hyung Jong Na: School of Global Business Administration, Semyung University, Jecheon 27136, Korea

Sustainability, 2021, vol. 13, issue 4, 1-19

Abstract: Despite the general agreement that a firm embodies its own culture, there is still a lack of empirical research on how a firm’s culture affects its value. Another caveat on previous studies is that they implicitly assume that a firm’s culture does not vary over time. In this paper, we examine the following two questions to address this lack: (1) Does a firm’s culture affect the firm’s value? (2) If a firm’s culture varies at different life cycle stages, do these changes have an impact on firm value? By using a competing values framework, we identify four types of corporate culture—adhocracy, market, clan, and hierarchy—and use life cycle stages to proxy for changes in a firm’s environment. The results reveal that adhocracy culture has a positive effect on a firm’s value. In contrast, we find a negative association between hierarchy culture and a firm’s value. This can be interpreted as the features of adhocracy culture, which gives autonomy to its members (flexible and discretion) and keeps challenging a firm to grow (external focus and differentiation), positively impacting firm value more than the other cultures. Furthermore, at a growth stage in which a firm faces dynamic environmental changes, both adhocracy and clan cultures have an incrementally positive effect on firm value. This implies that firms in mature or decline stages lose dynamic changes in their operational environment, therefore, the effect of culture on firm value is restricted in those stages.

Keywords: corporate culture; flexible culture; external-oriented culture; firm value; life cycle stages (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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