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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.

Suggested Citation

  • Van den Steen, Eric, 2005. "On the Origin of Shared Beliefs (and Corporate Culture)," Working papers 27855, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  • Handle: RePEc:mit:sloanp:27855
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    File URL: http://hdl.handle.net/1721.1/27855
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    References listed on IDEAS

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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. Di Maggio, Marco, 2009. "Sweet Talk: A Theory of Persuasion," MPRA Paper 18697, University Library of Munich, Germany.
    2. Charles M. Cameron & John M. de Figueiredo & David E. Lewis, 2016. "Public Sector Personnel Economics: Wages, Promotions, and the Competence-Control Trade-off," NBER Working Papers 22966, National Bureau of Economic Research, Inc.
    3. Vicente Calabuig & Gonzalo Olcina & Fabrizio Panebianco, 2014. "The Dynamics of Personal Norms and the Emergence of Cultural Diversity," Discussion Papers in Economic Behaviour 0514, University of Valencia, ERI-CES.
    4. Roland Bénabou, 2013. "Groupthink: Collective Delusions in Organizations and Markets," Review of Economic Studies, Oxford University Press, vol. 80(2), pages 429-462.
    5. Marie-Louise Vierø, 2012. "Contracting in Vague Environments," American Economic Journal: Microeconomics, American Economic Association, vol. 4(2), pages 104-130, May.
    6. Michael Kosfeld & Ferdinand A. von Siemens, 2011. "Competition, cooperation, and corporate culture," RAND Journal of Economics, RAND Corporation, vol. 42(1), pages 23-43, March.
    7. Morrison, Alan & Thanassoulis, John, 2017. "Ethical standards and cultural assimilation in financial services," CEPR Discussion Papers 12060, C.E.P.R. Discussion Papers.
    8. 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.
    9. Danilov, Anastasia & Harbring, Christine & Irlenbusch, Bernd, 2014. "Helping in Teams," IZA Discussion Papers 8707, Institute for the Study of Labor (IZA).
    10. 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.
    11. 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).
    12. Liu, Xiaoding, 2016. "Corruption culture and corporate misconduct," Journal of Financial Economics, Elsevier, vol. 122(2), pages 307-327.
    13. Hiller, Victor & Verdier, Thierry, 2014. "Corporate culture and identity investment in an industry equilibrium," Journal of Economic Behavior & Organization, Elsevier, pages 93-112.
    14. Christian Cordes & Peter Richerson & Georg Schwesinger, 2014. "A corporation’s culture as an impetus for spinoffs and a driving force of industry evolution," Journal of Evolutionary Economics, Springer, pages 689-712.
    15. Thakor, Anjan V., 2015. "Strategic information disclosure when there is fundamental disagreement," Journal of Financial Intermediation, Elsevier, vol. 24(2), pages 131-153.
    16. Echeverría, Manuel, 2012. "Value Oriented Organizations with Value Neutral Hierarchies," Working Papers 2012:25, Lund University, Department of Economics.
    17. Alonso, Ricardo & Câmara, Odilon, 2016. "Bayesian persuasion with heterogeneous priors," Journal of Economic Theory, Elsevier, vol. 165(C), pages 672-706.
    18. repec:kap:jbuset:v:142:y:2017:i:4:d:10.1007_s10551-016-3111-0 is not listed on IDEAS

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    Keywords

    homogeneity; shared beliefs; differing priors; corporate culture;

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