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Culture Clash: The Costs and Benefits of Homogeneity

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  • Eric J. Van den Steen

    ()
    (Harvard Business School, Strategy Unit)

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 homogenous but different from each other, merge, the above results translate to specific predictions how the change in homogeneity will affect firm behavior. The paper's predictions can also serve more in general as a test for the theory of culture as homogeneity of beliefs.

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Bibliographic Info

Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 10-003.

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Length: 38 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:hbs:wpaper:10-003

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Cited by:
  1. 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.
  2. Dennis Campbell, 2010. "Employee Selection as a Control System," Harvard Business School Working Papers 11-021, Harvard Business School, revised Sep 2010.
  3. Kandel, Eugene & Massa, Massimo & Simonov, Andrei, 2011. "Do small shareholders count?," Journal of Financial Economics, Elsevier, vol. 101(3), pages 641-665, September.
  4. 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.
  5. 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.
  6. Felipe Balmaceda, 2011. "Job Design and Incentives," Documentos de Trabajo 279, Centro de Economía Aplicada, Universidad de Chile.
  7. Rajiv Sethi & Muhamet Yildiz, 2012. "Public Disagreement," American Economic Journal: Microeconomics, American Economic Association, vol. 4(3), pages 57-95, August.
  8. Van den Steen, Eric, 2005. "Too Motivated?," Working papers 18180, Massachusetts Institute of Technology (MIT), Sloan School of Management.

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