Measuring Organizational Culture Using
Natural Language Processing and Its
Applications in Finance

Abstract

Organizational culture is a comprehensive concept, encompassing both implicit and explicit contracts to govern internal behavior within organizations. Diagnosing cultural types and understanding evolving cultural preferences is crucial for organizations to guide their operations more efficiently. External investors are also interested in cultural information to make better judgments. This thesis includes three studies that leverage innovative methodologies and empirical analyses to provide new insights into the measurement of organizational culture and its practical applications in corporate management and risk management.
The first study introduces a novel methodology for quantifying organizational culture using text-based analysis of 10-K filings. By employing a bag-of-words approach derived from the Organizational Culture Assessment Instrument (OCAI) scale, this study offers a new way for both internal and external stakeholders to identify critical cultural information from publicly disclosed documents. Unlike previous studies that rely extensively on surveys or financial indicators, this method utilizes big data tools to analyze archival data, enabling large-scale, longitudinal analyses. The construct validity of the organizational culture measures is empirically established, contributing to the literature by developing an accessible and reliable measure of organizational culture, which allows for conducting large-scale longitudinal analyses of its antecedents and consequences. Furthermore, this study applies the methodology to analyze cultural shifts during the COVID-19 pandemic, providing insights into how organizations adapt their cultures in response to significant external shocks.
The second study investigates the impact of bank competition culture on earnings management activity. By implementing the methodology proposed in first study, this study quantifies bank competition culture. I find the empirical evidence indicating that banks with higher levels of competition culture tend to have a higher probability to meet and/or beat analysts’ forecasts and have reduced tendencies in manipulating earnings through discretionary loan loss provision activity. Additionally, this study presents evidence of a negative relationship between the propensity to meet and/or beat analysts’ forecasts and discretionary loan loss provisioning, specifically within banks characterized by a strong competition culture. The results indicate that the presence of a competition culture within banks leads to a decrease in discretionary loan loss provisioning, which in turn increases the likelihood of meeting/beating analysts’ forecasts. The findings of this chapter have important policy implications as they signal that the competition culture can affect accounting choices, information environments, and economic outcomes in banks.
The third study explores the intricate relationship between internal-focused organizational culture, specifically collaborate and control culture, and their impacts on cybersecurity outcomes. Utilizing a firm-level cyber risk measurement derived from 10-K filings and data breach dataset from the Privacy Rights Clearinghouse, the study investigates how these cultures influence the incidence and management of cyber risks and data breaches. Empirical results indicate that control culture significantly enhances cyber risk management across various organizational sizes due to their structured compliance and risk mitigation approaches. In contrast, the effectiveness of collaborate culture varies, showing benefits in relatively smaller (employees less than 10,000) organizations but potential vulnerabilities in more extensive settings. The study provides new insights into the strategic alignment between corporate culture and cybersecurity management, offering valuable implications for both theory and practice.
Overall, this thesis contributes to the literature by providing a novel methodology for measuring organizational culture, empirically demonstrating its impact on critical business outcomes, and offering practical insights for enhancing organizational effectiveness and resilience in the domains of corporate management and risk management.