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Corporate Culture and Investment–Cash Flow Sensitivity

Fuxiu Jiang (), Kenneth A. Kim (), Yunbiao Ma (), John R. Nofsinger () and Beibei Shi ()
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Fuxiu Jiang: Renmin University of China
Kenneth A. Kim: Tongji University
Yunbiao Ma: Renmin University of China
John R. Nofsinger: University of Alaska Anchorage
Beibei Shi: University of International Business and Economics

Journal of Business Ethics, 2019, vol. 154, issue 2, 425-439

Abstract: Abstract Can firms overcome credit constraints with a corporate culture of high integrity? We empirically address this question by studying their investment–cash flow sensitivities. We identify firms with a culture of integrity through textual analysis of public documents in a sample of Chinese listed firms and also through corporate culture statements. Our results show that firms with an integrity-focused culture have lower investment–cash flow sensitivity, even after we address endogeneity concerns. However, we also find that for the culture to reduce the investment–cash flow sensitivity, external stakeholders must be able to verify this culture through a low information asymmetry environment. Overall, our findings show that a corporate culture of high integrity can mitigate a firm’s external transaction costs.

Keywords: Corporate culture; Integrity; Investment–cash flow sensitivity (search for similar items in EconPapers)
Date: 2019
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