Corporate culture, corporate governance, and independent directors: evidence from textual analysis

Pattanaporn Chatjuthamard, Pornsit Jiraporn, Merve Kilic, Ali Uyar

Research output: Contribution to journalArticlepeer-review

Abstract

Purpose: Taking advantage of a unique measure of corporate culture obtained from advanced machine learning algorithms, this study aims to explore how corporate culture strength is influenced by board independence, which is one of the most crucial aspects of the board of directors. Because of their independence from the corporation, outside independent directors are more likely to be unbiased. As a result, board independence is commonly used as a proxy for board quality. Design/methodology/approach: In addition to the standard regression analysis, the authors execute a variety of additional tests, i.e. propensity score matching, an instrumental variable analysis, Lewbel’s (2012) heteroscedastic identification and Oster’s (2019) testing for coefficient stability. Findings: The results show that stronger board independence, measured by a higher proportion of independent directors, is significantly associated with corporate culture. In particular, a rise in board independence by one standard deviation results in an improvement in corporate culture by 32.8%. Originality/value: Conducting empirical research on corporate culture is incredibly difficult due to the inherent difficulties in recognizing and assessing corporate culture, resulting in a lack of empirical research on corporate culture in the literature. The authors fill this important void in the literature. Exploiting a novel measure of corporate culture based on textual analysis, to the best of the authors’ knowledge, this study is the first to link corporate culture to corporate governance with a specific focus on board independence.

Original languageEnglish (US)
JournalSociety and Business Review
DOIs
StateAccepted/In press - 2024

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Business, Management and Accounting (miscellaneous)
  • Strategy and Management
  • Organizational Behavior and Human Resource Management

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