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Culture Clash: The Costs and Benefits of Homogeneity

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  • Eric Van den Steen

    ()
    (Harvard Business School, Harvard University, Boston, Massachusetts 02163)

Abstract

This paper develops an economic theory of the costs and benefits of corporate culture--in the sense of shared beliefs and values--in order to study the effects of "culture clash" in mergers and acquisitions. I first use a simple analytical framework to show that shared beliefs lead to more delegation, less monitoring, higher utility (or satisfaction), higher execution effort (or motivation), faster coordination, less influence activities, and more communication, but also to less experimentation and less information collection. When two firms that are each internally homogeneous but different from each other merge, the above results translate to specific predictions about how the change in homogeneity will affect firm behavior. This paper's predictions can also serve more in general as a test for the theory of culture as shared beliefs.

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File URL: http://dx.doi.org/10.1287/mnsc.1100.1214
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 56 (2010)
Issue (Month): 10 (October)
Pages: 1718-1738

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Handle: RePEc:inm:ormnsc:v:56:y:2010:i:10:p:1718-1738

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Related research

Keywords: corporate strategy; culture clash; mergers and acquisitions; corporate culture; performance; differing priors; heterogeneous priors;

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Cited by:
  1. Kandel, Eugene & Massa, Massimo & Simonov, Andrei, 2011. "Do small shareholders count?," Journal of Financial Economics, Elsevier, vol. 101(3), pages 641-665, September.
  2. Felipe Balmaceda, 2011. "Job Design and Incentives," Documentos de Trabajo 279, Centro de Economía Aplicada, Universidad de Chile.
  3. Hiller, Victor & Verdier, Thierry, 2014. "Corporate culture and identity investment in an industry equilibrium," Journal of Economic Behavior & Organization, Elsevier, vol. 103(C), pages 93-112.
  4. Van den Steen, Eric, 2005. "Too Motivated?," Working papers 18180, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  5. Dennis Campbell, 2010. "Employee Selection as a Control System," Harvard Business School Working Papers 11-021, Harvard Business School, revised Sep 2010.
  6. Rajiv Sethi & Muhamet Yildiz, 2012. "Public Disagreement," American Economic Journal: Microeconomics, American Economic Association, vol. 4(3), pages 57-95, August.
  7. John R. Graham & Campbell R. Harvey & Manju Puri, 2011. "Capital Allocation and Delegation of Decision-Making Authority within Firms," NBER Working Papers 17370, National Bureau of Economic Research, Inc.
  8. Carretta, Alessandro & Farina, Vincenzo & Fiordelisi, Franco & Schwizer, Paola, 2006. "Corporate culture and shareholder value in banking industry," MPRA Paper 8304, University Library of Munich, Germany.

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