Corporate Culture and Investment–Cash Flow Sensitivity
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Can firms overcome credit constraints with a corporate culture of high integrity? We empirically address this question by studying their investment–cash flow sensitivities. We identify firms with a culture of integrity through textual analysis of public documents in a sample of Chinese listed firms and also through corporate culture statements. Our results show that firms with an integrity-focused culture have lower investment–cash flow sensitivity, even after we address endogeneity concerns. However, we also find that for the culture to reduce the investment–cash flow sensitivity, external stakeholders must be able to verify this culture through a low information asymmetry environment. Overall, our findings show that a corporate culture of high integrity can mitigate a firm’s external transaction costs.
KeywordsCorporate culture Integrity Investment–cash flow sensitivity
Fuxiu Jiang acknowledges the financial support from the China National Natural Science Foundation (Nos. 71432008 and 71172179).
Compliance with Ethical Standards
Conflict of interest
The authors declare that they have no conflict of interest.
This article does not contain any studies with human participants or animals performed by any of the authors.
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