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Corporate Culture as a Theory of the Firm

Author

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  • Gary B. Gorton
  • Alexander K. Zentefis

Abstract

Markets and firms offer contrasting methods to arrange production. In markets, contracts govern the purchase of parts and services that compose production. In firms, the shared values, customs, and norms coming from a corporate culture govern employees’ joint development of those parts and services. We argue for this distinction as a theory of the firm. Firms exist because corporate culture at times is more efficient at carrying out production than detailed contracts. The firm’s boundary encircles the parts of production for which a manager optimally chooses corporate culture as the organizing device. The model can explain why some mergers and acquisitions fail, in a way consistent with empirical evidence, and why corporate cultures are hard to change.

Suggested Citation

  • Gary B. Gorton & Alexander K. Zentefis, 2020. "Corporate Culture as a Theory of the Firm," NBER Working Papers 27353, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27353
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    References listed on IDEAS

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    1. Laura Alfaro & Nicholas Bloom & Paola Conconi & Harald Fadinger & Patrick Legros & Andrew F. Newman & Raffaella Sadun & John Van Reenen, 2017. "Come Together: Firm Boundaries and Delegation," Harvard Business School Working Papers 18-051, Harvard Business School, revised May 2019.
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    6. -, 1986. "Agenda = Agenda," Series Históricas 8749, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    7. George G. Gordon & Nancy DiTomaso, 1992. "Predicting Corporate Performance From Organizational Culture," Journal of Management Studies, Wiley Blackwell, vol. 29(6), pages 783-798, November.
    8. Gary B. Gorton & Alexander K. Zentefis, 2019. "Social Progress and Corporate Culture," NBER Working Papers 25484, National Bureau of Economic Research, Inc.
    9. Editors The, 2008. "From the Editors," Basic Income Studies, De Gruyter, vol. 3(1), pages 1-1, July.
    10. Günter K. Stahl & Andreas Voigt, 2008. "Do Cultural Differences Matter in Mergers and Acquisitions? A Tentative Model and Examination," Organization Science, INFORMS, vol. 19(1), pages 160-176, February.
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    Cited by:

    1. Olena F. Androsova & Natalia V. Katkova, 2022. "Diagnostics of Corporate Culture on Machine-Building Enterprises in Ukraine," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 149-161.

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    More about this item

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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