Gary B. Gorton is the Frederick Frank Class of 1954 Professor of Finance and Alexander Zentefis is Assistant Professor of Finance, both at the Yale School of Management. This post is based on their recent paper.
Business leaders have long recognized that corporate culture is vital to a company’s identity and success. In one of the more colorful descriptions of culture’s importance, the legendary management author Peter Drucker wrote: “culture eats strategy for breakfast, technology for lunch, and products for dinner, and soon thereafter everything else too.” Similarly, former IBM Chairman and CEO Louis V. Gerstner, Jr. wrote: “I came to see, in my time at IBM, that culture isn’t just one aspect of the game, it is the game.”
And yet, scholars have consistently overlooked corporate culture in their theories of the firm. For the most part, existing theories have focused on the costs and benefits of asset ownership and/or incentive contracts to explain whether a company produces parts and services in house or instead purchases them in a market (the “make-or-buy decision”). Bengt Holmström and John Roberts provide a detailed survey of numerous current theories (Holmström and Roberts 1998) and Robert Gibbons supplies an elegant synthesis of several theories (Gibbons 2005).
