Essays on the impact of corporate culture in finance

Alabdullah, Sahar 2023. Essays on the impact of corporate culture in finance. PhD Thesis, Cardiff University. Item availability restricted.

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Abstract

In recent years, the implications of corporate culture on firm policies and decision-making have gained growing attention within the field of finance. In this thesis, I define four corporate cultural dimensions based on the Competing Values Framework (CVF): Collaborate, Control, Create, and Compete. I quantify corporate culture by employing a text-based analysis and investigate its association with three corporate finance topics. First, I start with the impact of corporate culture on CEO compensation structure. Using a sample of non-financial non-utility publicly traded US firms over the period 1999-2018, I find that firms with a competitive corporate culture, that promotes risk-taking, optimally design their compensation plans with more equity-based and less cash-based compensation to motivate risk-taking behaviour and link these rewards with shareholders’ wealth. The results are robust to multiple robustness and endogeneity tests. A further test shows that pay-performance sensitivity (PPS) is stronger in firms with competitive and creative cultures. Second, I explore the role of corporate culture on corporate cash holdings by proposing and testing two competing hypotheses. I find that corporate culture dimensions with low information asymmetry (i.e., competitive, creative, and collaborative) have higher cash holdings. The findings remain significant after implementing several robustness and endogeneity tests. Extra analysis shows that competitive and creative firms hold more cash when those firms have higher R&D investments. These results hinder the validity of the precautionary motive in explaining the increase in cash holdings and support the research hypothesis. I also demonstrate that those firms with creative and competitive cultures use excess cash holdings in a way that enhances the firm’s future profitability proxied by ROA. Finally, I explore whether corporate culture can be shaped by the firm’s board of directors. I provide evidence that independent directors’ connectedness has a positive and significant impact on firms’ corporate culture (an aggregate measure of the four dimensions of the CVF). The results of additional robustness and endogeneity checks show that the original finding is robust to these tests. In further tests, I reveal that this positive impact stems from the advisory advantage, suggesting that well-connected independent directors are more influential in enhancing firms’ cultures when those firms require more advising due to the complex nature of their operations. In addition, I show that the joint impact of independent iii directors’ connectedness and corporate culture is positive and significant for firms’ Tobin’s Q and ROA when those firms require more advising. My thesis has important implications for multiple stakeholders, including academic research, firms, shareholders, and regulators.

Item Type:	Thesis (PhD)
Date Type:	Completion
Status:	Unpublished
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > H Social Sciences (General)
Uncontrolled Keywords:	Corporate culture, Competing Values Framework, CVF, CEO compensation, Cash holdings, Board networks, Directors' connectedness
Last Modified:	27 Nov 2024 02:30
URI:	https://orca.cardiff.ac.uk/id/eprint/164398

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