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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.

Suggested Citation

  • Eric J. Van den Steen, 2009. "Culture Clash: The Costs and Benefits of Homogeneity," Harvard Business School Working Papers 10-003, Harvard Business School.
  • Handle: RePEc:hbs:wpaper:10-003
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jaewon Jung, 2015. "Organizational Belief, Managerial Vision, and International Trade," FIW Working Paper series 161, FIW.
    2. 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.
    3. Kets, Willemien & Sandroni, Alvaro, 2015. "Challenging Conformity: A Case for Diversity," MPRA Paper 68166, University Library of Munich, Germany.
    4. Hung, Chung-yu, 2015. "Heterogeneous agents and decison making within firms," Other publications TiSEM 1a300b4f-7f2a-4554-9d1a-1, Tilburg University, School of Economics and Management.
    5. Jaewon Jung, 2017. "Organizational Belief, Managerial Vision, and International Trade," THEMA Working Papers 2017-26, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    6. Daniels, David P. & Neale, Margaret A. & Greer, Lindred L., 2017. "Spillover bias in diversity judgment," Organizational Behavior and Human Decision Processes, Elsevier, vol. 139(C), pages 92-105.
    7. Gil S. Epstein & Renana Lindner‐Pomerantz, 2017. "The Survival of Unique Corporate Cultures," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 38(4), pages 622-629, June.
    8. Van den Steen, Eric, 2005. "Too Motivated?," Working papers 18180, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    9. repec:bla:indres:v:56:y:2017:i:3:p:411-426 is not listed on IDEAS
    10. Carolyn Deller & Susanna Gallani & Tatiana Sandino, 2017. "In Search of Organizational Alignment Using a 360 Assessment System: Evidence from a Retail Chain," Harvard Business School Working Papers 18-069, Harvard Business School.
    11. 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.
    12. Kandel, Eugene & Massa, Massimo & Simonov, Andrei, 2011. "Do small shareholders count?," Journal of Financial Economics, Elsevier, vol. 101(3), pages 641-665, September.
    13. repec:eee:jcecon:v:45:y:2017:i:4:p:685-711 is not listed on IDEAS
    14. Dennis Campbell, 2010. "Employee Selection as a Control System," Harvard Business School Working Papers 11-021, Harvard Business School, revised Sep 2010.
    15. Alain Cohn & Ernst Fehr & Michel André Maréchal, 2017. "Do Professional Norms in the Banking Industry Favor Risk-taking?," CESifo Working Paper Series 6398, CESifo Group Munich.
    16. repec:aea:aejmic:v:9:y:2017:i:3:p:100-125 is not listed on IDEAS
    17. Felipe Balmaceda, 2011. "Job Design and Incentives," Documentos de Trabajo 279, Centro de Economía Aplicada, Universidad de Chile.
    18. Rajiv Sethi & Muhamet Yildiz, 2012. "Public Disagreement," American Economic Journal: Microeconomics, American Economic Association, vol. 4(3), pages 57-95, August.
    19. Graham, John R. & Harvey, Campbell R. & Puri, Manju, 2015. "Capital allocation and delegation of decision-making authority within firms," Journal of Financial Economics, Elsevier, vol. 115(3), pages 449-470.
    20. repec:bla:srbeha:v:34:y:2017:i:2:p:195-207 is not listed on IDEAS
    21. Eric Van den Steen, 2010. "On the origin of shared beliefs (and corporate culture)," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 617-648.
    22. Morrison, Alan & Thanassoulis, John, 2017. "Ethical standards and cultural assimilation in financial services," CEPR Discussion Papers 12060, C.E.P.R. Discussion Papers.

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