Measuring Corporate Culture Using Machine Learning. (9th July 2020)

• Record Type: Journal Article
• Authors: Li, Kai; Mai, Feng; Shen, Rui; Yan, Xinyan
• Editors: Goldstein, Itay
• Is Part Of: Review of financial studies. Volume 34:Number 7(2021)
• Page Start: 3265
• Page End: 3315
• Publication Date: 2020-07-09
• Subjects: C45 -- G34 -- M14; Finance -- United States -- Periodicals; Finance -- Periodicals; 332
• DOI: 10.1093/rfs/hhaa079
• Languages: English
• ISSNs: 0893-9454

Abstract

Abstract: We create a culture dictionary using one of the latest machine learning techniques—the word embedding model—and 209, 480 earnings call transcripts. We score the five corporate cultural values of innovation, integrity, quality, respect, and teamwork for 62, 664 firm-year observations over the period 2001–2018. We show that an innovative culture is broader than the usual measures of corporate innovation – R&D expenses and the number of patents. Moreover, we show that corporate culture correlates with business outcomes, including operational efficiency, risk-taking, earnings management, executive compensation design, firm value, and deal making, and that the culture-performance link is more pronounced in bad times. Finally, we present suggestive evidence that corporate culture is shaped by major corporate events, such as mergers and acquisitions.