Corporate Culture as a Theory of the Firm

Gary Gorton and Alexander K. Zentefis

No 27353, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Markets and firms offer contrasting methods to arrange production. In markets, contracts govern the purchase of parts and services that compose production. In firms, the shared values, customs, and norms coming from a corporate culture govern employees’ joint development of those parts and services. We argue for this distinction as a theory of the firm. Firms exist because corporate culture at times is more efficient at carrying out production than detailed contracts. The firm’s boundary encircles the parts of production for which a manager optimally chooses corporate culture as the organizing device. The model can explain why some mergers and acquisitions fail, in a way consistent with empirical evidence, and why corporate cultures are hard to change.

JEL-codes: D02 D4 G30 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-bec, nep-cta and nep-mic
Note: CF IO
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Citations: View citations in EconPapers (1)

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