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On the Origin of Shared Beliefs (and Corporate Culture)

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  • Van den Steen, Eric

Abstract

This paper shows why members of an organization often share similar beliefs. I argue that there are two mechanisms. First, when performance depends on making correct decisions, people prefer to work with others who share their beliefs and assumptions, since such others 'will do the right thing'. Second, beliefs will converge over time through shared learning. While such homogeneity reduces agency problems, it does so at a cost. I show that, from an outsider's perspective, firms invest on average too much in homogeneity. The theory further predicts that homogeneity will be strongest in successful and older firms where employees make important decisions. Within a firm, homogeneity will be stronger among more important employees. Homogeneity will also be path-dependent, making managers more selective on early hires. Since shared beliefs are an important aspect of corporate culture (Schein 1985, Kotter and Heskett 1992), I finally show that the model matches some observations on corporate culture, such as the influence of a manager on her firm's culture and the persistence of culture in the face of turnover. A fundamental difference from earlier economic theories of corporate culture is that I show that culture, instead of being created for its own good, can be a side-effect of other purposeful actions. As a consequence, there can be too much culture in firms.

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File URL: http://hdl.handle.net/1721.1/27855
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Bibliographic Info

Paper provided by Massachusetts Institute of Technology (MIT), Sloan School of Management in its series Working papers with number 27855.

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Date of creation: 23 Sep 2005
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Handle: RePEc:mit:sloanp:27855

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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA
Phone: 617-253-2659
Web page: http://mitsloan.mit.edu/
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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA

Related research

Keywords: homogeneity; shared beliefs; differing priors; corporate culture;

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References

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  1. Roberto A. Weber & Colin F. Camerer, 2003. "Cultural Conflict and Merger Failure: An Experimental Approach," Management Science, INFORMS, vol. 49(4), pages 400-415, April.
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Cited by:
  1. Echeverría, Manuel, 2012. "Value Oriented Organizations with Value Neutral Hierarchies," Working Papers 2012:25, Lund University, Department of Economics.
  2. Roland Bénabou, 2013. "Groupthink: Collective Delusions in Organizations and Markets," Review of Economic Studies, Oxford University Press, vol. 80(2), pages 429-462.
  3. Marie-Louise Vierø, 2006. "Contracting in Vague Environments," Working Papers 1106, Queen's University, Department of Economics.
  4. Kosfeld, Michael & von Siemens, Ferdinand, 2007. "Competition, Cooperation, and Corporate Culture," IZA Discussion Papers 2927, Institute for the Study of Labor (IZA).
  5. Cronqvist, Henrik & Low, Angie & Nilsson, Mattias, 2007. "Does Corporate Culture Matter for Firm Policies?," Working Paper Series 2007-1, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  6. Di Maggio, Marco, 2009. "Sweet Talk: A Theory of Persuasion," MPRA Paper 18697, University Library of Munich, Germany.
  7. Cronqvist, Henrik & Low, Angie & Nilsson, Mattias, 2007. "Does Corporate Culture Matter for Firm Policies?," SIFR Research Report Series 48, Institute for Financial Research.
  8. 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.
  9. Christian Cordes & Peter J. Richerson & Georg Schwesinger, 2011. "A Corporation's Culture as an Impetus for Spinoffs and a Driving Force of Industry Evolution," Papers on Economics and Evolution 2011-11, Max Planck Institute of Economics, Evolutionary Economics Group.
  10. HIROTA Shinichi & KUBO Katsuyuki & MIYAJIMA Hideaki, 2007. "Does Corporate Culture Matter? An Empirical Study on Japanese Firms," Discussion papers 07030, Research Institute of Economy, Trade and Industry (RIETI).

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