Business Culture: The Role of Personal and Impersonal Business Relationships on Market Efficiency

Manuel Munoz-Herrera and Ernesto Reuben
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Manuel Munoz-Herrera: New York University, Abu Dhabi

No 12398, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In this paper, we study the effects of business culture on market efficiency. We exogenously vary the type of business culture between business-is-business cultures, which consist on impersonal relationships where financial matters are paramount, and business-is-family cultures, which comprise of cohesive personal relationships where financial matters and personal attachments are intertwined. We use a laboratory experiment to assess the effect of business cultures in environments with different degrees of contract enforceability and competition. Our main results indicate that business-is-family cultures are more effective when contracts are unverifiable because they help market participants overcome problems of trust. On the other hand, we find that business-is-business cultures are more effective in competitive settings because they facilitate the severance of ties with unproductive partners.

Keywords: trust; contracts; competition; business culture; communication; social ties (search for similar items in EconPapers)
JEL-codes: D91 L22 M14 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2019-06
New Economics Papers: this item is included in nep-com, nep-cta, nep-exp and nep-soc
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Working Paper: Business culture: The role of personal and impersonal business relationships on market efficiency (2019)
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