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The Role of Corporate Culture in Bad Times: Evidence from the COVID-19 Pandemic

Published online by Cambridge University Press:  14 June 2021

Kai Li Open the ORCID record for Kai Li [Opens in a new window] ,
Xing Liu ,
Feng Mai  and
Tengfei Zhang
Kai Li*
Affiliation:
University of British Columbia Sauder School of Businesskai.li@sauder.ubc.ca
Xing Liu
Affiliation:
University of British Columbia Sauder School of Businessxing.liu@sauder.ubc.ca
Feng Mai
Affiliation:
Stevens Institute of Technology School of Businessfeng.mai@stevens.edu
Tengfei Zhang
Affiliation:
Louisiana State University E. J. Ourso College of Businesstzhan23@lsu.edu
*
kai.li@sauder.ubc.ca (corresponding author)
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Abstract

After fitting a topic model to 40,927 COVID-19–related paragraphs in 3,581 earnings calls over the period Jan. 22–Apr. 30, 2020, we obtain firm-level measures of exposure and response related to COVID-19 for 2,894 U.S. firms. We show that despite the large negative impact of COVID-19 on their operations, firms with a strong corporate culture outperform their peers without a strong culture. Moreover, these firms are more likely to support their community, embrace digital transformation, and develop new products than those peers. We conclude that corporate culture is an intangible asset designed to meet unforeseen contingencies as they arise.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 7: JFQA Symposium on the Consequences of the COVID-19 Pandemic for Firms and Capital Markets , November 2021 , pp. 2545 - 2583
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We thank the special issue editors Ran Duchin and Jarrad Harford; Elroy Dimson, Kevin Gao, Jason Gong, Mark Grinblatt, Qiang Kang, Oguzhan Karakas, Jon Karpoff, Bart Lambrecht, Raghu Rau, Qinzheng Xu, and Chendi Zhang; conference participants at the First Annual Canadian Sustainable Finance Network (CSFN) Conference; and seminar participants at Central University of Finance and Economics, Florida International University, Microsoft Research NYC, University of Cambridge, the Journal of Financial and Quantitative Analysis (JFQA) COVID-19 Symposium, and the Corporate Finance Workshop for their helpful comments. We acknowledge financial support from the Social Sciences and Humanities Research Council of Canada (Grant 435-2018-0037) and the Sauder Exploratory Research Grants Program. All errors are our own.

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