Journal of Business Ethics

, Volume 154, Issue 2, pp 425–439 | Cite as

Corporate Culture and Investment–Cash Flow Sensitivity

  • Fuxiu Jiang
  • Kenneth A. KimEmail author
  • Yunbiao Ma
  • John R. Nofsinger
  • Beibei Shi
Original Paper


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.


Corporate 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.

Ethical Approval

This article does not contain any studies with human participants or animals performed by any of the authors.


  1. Alchian, A. A., & Demsetz, H. (1972). Production, information costs, and economic organization. American Economic Review, 62, 777–795.Google Scholar
  2. Aldohni, A. K. (2016). Is ethical finance the answer to the ills of the UK financial market? A post-crisis analysis. Journal of Business Ethics. doi: 10.1007/s10551-016-3269-5.
  3. Antweiler, W., & Murray, Z. F. (2004). Is all that talk just noise? The information content of internet stock message boards. Journal of Finance, 59, 1259–1293.CrossRefGoogle Scholar
  4. Ascioglu, A., Hegde, S. P., & McDermott, J. B. (2008). Information asymmetry and investment-cash flow sensitivity. Journal of Banking and Finance, 32(6), 1036–1048.CrossRefGoogle Scholar
  5. Attig, N., Cleary, S., El Ghoul, S., & Guedhami, O. (2012). Institutional investment horizon and investment-cashflow sensitivity. Journal of Banking and Finance, 36, 1164–1180.CrossRefGoogle Scholar
  6. Attig, N., El Ghoul, S., Guedhami, O., & Suh, J. (2013). Corporate social responsibility and credit ratings. Journal of Business Ethics, 117, 679–694.CrossRefGoogle Scholar
  7. Balvers, R. J., Gaski, J. F., & McDonald, B. (2016). Financial disclosure and customer satisfaction: Do companies talking the talk actually walk the walk? Journal of Business Ethics, 139, 29–45.CrossRefGoogle Scholar
  8. Benlemlih, M., & Bitar, M. (2016). Corporate social responsibility and investment efficiency. Journal of Business Ethics. doi: 10.1007/s10551-016-3020-2.
  9. Bowen, R. M., Chen, X., & Cheng, Q. (2003). Information asymmetry, analyst coverage and underpricing of seasoned equity offerings. University of Washington working paper.Google Scholar
  10. Chang, X., Dasgupta, S., & Hilary, G. (2006). Analyst coverage and financing decisions. Journal of Finance, 61, 3009–3048.CrossRefGoogle Scholar
  11. Chung, K. H., McInish, T. H., Wood, R. A., & Wyhowski, D. J. (1995). Production of information, information asymmetry, and the bid-ask spread: Empirical evidence from analysts’ forecasts. Journal of Banking and Finance, 19, 1025–1046.CrossRefGoogle Scholar
  12. Coase, R. H. (1937). The nature of the firm. Economica, 4, 386–405.CrossRefGoogle Scholar
  13. Crémer, J. (1993). Corporate culture and shared knowledge. Industrial and Corporate Change, 2, 351–386.Google Scholar
  14. Denison, D. R. (1984). Bringing corporate culture to the bottom line. Organizational Dynamics, 13(2), 5–22.CrossRefGoogle Scholar
  15. Dhanani, A., & Connolly, C. (2015). Non-governmental organizational accountability: Talking the talk and walking the walk? Journal of Business Ethics, 129(3), 613–637.CrossRefGoogle Scholar
  16. Dunn, K., & Nathan, S. (1998). The effect of industry diversification on consensus and individual analysts’ earnings forecasts. Georgia State University working paper.Google Scholar
  17. El Ghoul, S., Guedhami, O., Kwok, C. C. Y., & Mishra, D. R. (2011). Does corporate social responsibility affect the cost of capital? Journal of Banking and Finance, 35(9), 2388–2406.CrossRefGoogle Scholar
  18. El Ghoul, S., Guedhami, O., Nash, R., & Patel, A., (2016). New evidence on the role of the media in corporate social responsibility. Journal of Business Ethics. doi: 10.1007/s10551-016-3354-9.
  19. Erhard, W., Jensen, M. C., & Zaffron, S. (2016). Integrity: A positive model that incorporates the normative phenomena of morality, ethics, and legality-abridged. Harvard University working paper.Google Scholar
  20. Fama, E. F., & Jensen, M. C. (1983a). Separation of ownership and control. Journal of Law and Economics, 26, 301–325.CrossRefGoogle Scholar
  21. Fama, E. F., & Jensen, M. C. (1983b). Agency problems and residual claims. Journal of Law and Economics, 26, 327–349.CrossRefGoogle Scholar
  22. Fazzari, S., Hubbard, R. G., & Petersen, B. (1988). Investment, financing decisions, and tax policy. American Economic Review, 78, 200–205.Google Scholar
  23. Fiordelisi, F., & Ricci, O. (2014). Corporate culture and CEO turnover. Journal of Corporate Finance, 28, 66–82.CrossRefGoogle Scholar
  24. Flamholtz, E. (2001). Corporate culture and the bottom line. European Management Journal, 19, 268–275.CrossRefGoogle Scholar
  25. Francis, B., Hasan, I., Song, L., & Waisman, M. (2013). Corporate governance and investment-cashflow sensitivity: Evidence from emerging markets. Emerging Markets Review, 15, 57–71.CrossRefGoogle Scholar
  26. Guiso, L., Sapienza, P., & Zingales, L. (2015). The value of corporate culture. Journal of Financial Economics, 117, 60–76.CrossRefGoogle Scholar
  27. Guo, Z., Chan, K. C., & Xue, Y. (2014). The impact of corporate culture on performance: A quasi-quantitative approach. Available at
  28. Haniffa, R. M., & Cooke, T. E. (2002). Culture, corporate governance and disclosure in Malaysian corporations. Abacus, 38(3), 317–349.CrossRefGoogle Scholar
  29. Haniffa, R. M., & Cooke, T. E. (2005). The impact of culture and governance on corporate social reporting. Journal of Accounting and Public Policy, 24(5), 391–430.CrossRefGoogle Scholar
  30. Hansen, L. (1982). Large sample properties of generalized method of moments estimators. Econometrica, 50(4), 1029–1054.CrossRefGoogle Scholar
  31. Heckman, J. J. (1979). Sample selection bias as a specification error. Journal of the Econometric Society, 47, 153–161.CrossRefGoogle Scholar
  32. Heckman, J., & Robb, R. (1986). Alternative identifying assumptions in econometric models of selection bias. Advances in Econometrics, 5, 243–287.Google Scholar
  33. Hermalin, B. (2001). Economics and corporate culture. The Handbook of Organizational Culture and Climate. Chichester: Wiley.Google Scholar
  34. Heskett, J. L., & Kotter, J. P. (1992). Corporate culture and performance. Business Review, 2, 83–93.Google Scholar
  35. Hilary, G., & Hui, K. W. (2009). Does religion matter in corporate decision making in America? Journal of Financial Economics, 93, 455–473.CrossRefGoogle Scholar
  36. Hoberg, G., & Hanley, K. (2010). The information content of IPO prospectuses. Review of Financial Studies, 23, 2821–2864.CrossRefGoogle Scholar
  37. Hoberg, G., & Phillips, G. (2010). Product market synergies and competition in mergers and acquisitions: A text-based analysis. Review of Financial Studies, 23, 3773–3811.CrossRefGoogle Scholar
  38. Hong, H., Lim, T., & Stein, J. C. (2000). Bad news travels slowly: Size, analyst coverage, and the profitability of momentum strategies. Journal of Finance, 55, 265–295.CrossRefGoogle Scholar
  39. Hoshi, T., Kashyap, A., & Scharfstein, D. (1991). Corporate structure, liquidity, and investment: Evidence from Japanese industrial groups. Quarterly Journal of Economics, 106, 33–60.CrossRefGoogle Scholar
  40. Hsu, S. H. (2007). A new business excellence model with business integrity from ancient confucian thinking. Total Quality Management and Business Excellence, 18, 413–423.CrossRefGoogle Scholar
  41. Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3, 305–360.CrossRefGoogle Scholar
  42. Jiang, F. X., Shi, B. B., & Li, X. T. (2015). Do integrity-oriented firms behave honestly? Evidence from earnings management. Accounting Research, 8, 16–23.Google Scholar
  43. Koehn, D. (2005). Integrity as a business asset. Journal of Business Ethics, 58, 125–136.CrossRefGoogle Scholar
  44. Kreps, D. M. (1990). Corporate culture and economic theory. In J. E. Alt & K. A. Shepsle (Eds.), Perspectives on positive political economy. Cambridge: Cambridge University Press.Google Scholar
  45. Lazear, E. P. (1995). Culture and language. Journal of Political Economy, 107, 95–126.CrossRefGoogle Scholar
  46. Levinson, S. C. (2009). Let’s get the issues straight! In D. Genter & S. Goldin-Meadow (Eds.), Language in mind. Cambridge: MIT Press.Google Scholar
  47. Li, F. (2008). Annual report readability, current earnings, and earnings persistence. Journal of Accounting and Economics, 45, 221–247.CrossRefGoogle Scholar
  48. Loughran, T., & McDonald, B. (2011). When is a liability not a liability? Textual analysis, dictionaries, and 10-Ks. Journal of Finance, 66, 35–65.CrossRefGoogle Scholar
  49. McEvily, B., Perrone, V., & Zaheer, A. (2003). Trust as an organizing principle. Organization Science, 14, 91–103.CrossRefGoogle Scholar
  50. Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261–297.Google Scholar
  51. O’Reilly, C. A., & Chatman, J. A. (1996). Culture as social control: Corporations, cults, and commitment. Research in Organizational Behavior, 18, 157–200.Google Scholar
  52. Pawlina, G., & Renneboog, L. (2005). Is investment-cash flow sensitivity caused by agency costs or asymmetric information? Evidence from the UK. European Financial Management, 11(4), 483–513.CrossRefGoogle Scholar
  53. Rosenbaum, P. R., & Rubin, D. B. (1983). The central role of the propensity score in observational studies for causal effects. Biometrika, 70(1), 41–55.CrossRefGoogle Scholar
  54. Scheiber, F. (2015). Dressing up for diffusion: Codes of conduct in the German textile and apparel industry, 1997–2010. Journal of Business Ethics, 126(4), 559–580.CrossRefGoogle Scholar
  55. Sørensen, J. B. (2002). The strength of corporate culture and the reliability of firm performance. Administrative Science Quarterly, 47(1), 70–91.CrossRefGoogle Scholar
  56. Stein, J. C. (2003). Agency, information and corporate investment. Handbook of the Economics of Finance, 1, 111–165.CrossRefGoogle Scholar
  57. Stone, P. J., Dunphy, D. C., Smith, M. S., & Ogilvie, D. M. (1966). The general inquirer: A computer approach to content analysis. Oxford: MIT Press.Google Scholar
  58. Tetlock, P. C. (2007). Giving content to investor sentiment: The role of media in the stock market. Journal of Finance, 62, 1139–1168.CrossRefGoogle Scholar
  59. Tetlock, P. C., Saar-Tsechansky, M., & Mackassy, S. (2008). More than words: Quantifying language to measure firms’ fundamentals. Journal of Finance, 63, 1437–1467.CrossRefGoogle Scholar
  60. Thomas, S. (2002). Firm diversification and asymmetric information: Evidence from analysts’ forecasts and earnings announcements. Journal of Financial Economics, 64, 373–396.CrossRefGoogle Scholar
  61. Wilkins, A. L., & Ouchi, W. G. (1983). Efficient cultures: Exploring the relationship between culture and organizational performance. Administrative Science Quarterly, 28, 468–481.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2017

Authors and Affiliations

  • Fuxiu Jiang
    • 1
  • Kenneth A. Kim
    • 2
    • 3
    Email author
  • Yunbiao Ma
    • 1
  • John R. Nofsinger
    • 4
  • Beibei Shi
    • 5
  1. 1.School of BusinessRenmin University of ChinaBeijingChina
  2. 2.School of Economics and ManagementTongji UniversityShanghaiChina
  3. 3.School of ManagementState University of New York at BuffaloBuffaloUSA
  4. 4.College of Business and Public PolicyUniversity of Alaska AnchorageAnchorageUSA
  5. 5.School of International Trade and EconomicsUniversity of International Business and EconomicsBeijingChina

Personalised recommendations