Corporate culture, cultural diversification, and independent directors: Evidence from earnings conference calls

Capitalizing on a distinctive measure of corporate culture obtained from sophisticated machine learning, we investigate the concept of cultural diversification. A firm is culturally diversified if it is characterized by a variety of diverse cultural attributes. Motivated by agency theory, we hypothesize that risk-averse managers favor cultural diversification, but, owing to agency problems, tend to over-invest in cultural diversification. More effective governance in the form of stronger board independence mitigates the agency conflict, lowering the level of cultural diversification and bringing it closer to the optimal level where shareholder value is maximized. Our results strongly support this hypothesis.