Corporate culture and discontinued operations

What the paper says

Purpose We investigate the relation between corporate culture and the likelihood of discontinuing business operations. Design/methodology/approach We rely on regression analysis in our study. Findings We find a significant negative relation, suggesting that firms with strong corporate culture are less likely to discontinue business operations. To enhance the incremental contributions of our study, we delve into the moderating role of corporate culture on the aforementioned relation and identify several factors that, when coupled with corporate culture, could indirectly impact the decision-making process regarding discontinuing operations. We also find that the negative relation between corporate culture and discontinued operations is mainly driven by firms with lower earnings performance, and this relation becomes stronger for high-tech firms. Lastly, we find that stronger culture is associated with a larger magnitude of discontinued operations for firms reporting discontinued operations, and this positive association is largely driven by firms reporting income-decreasing discontinued operations. Originality/value Our analysis adds to two independent streams of research: corporate culture in management literature and discontinued operations in accounting literature. Prior research, in particular, focuses on examining if and how managers exploit discontinued operations to manipulate earnings. By showing a significant negative impact of corporate culture on the likelihood of discontinuing business operations, our research undoubtedly adds to the body of understanding regarding the factors that lead managers to discontinue certain operations.