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Cultural heritage can influence corporate profitability

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Staff Writer | October 26, 2017
Successful manager
Ancestors and business   The ground-breaking study

A study of U.S. banking CEOs, led by academics at the University of St Andrews and the University of Edinburgh, has found that cultural heritage can shape managerial behaviour and influence corporate performance and profitability.

The ground-breaking study asked whether a CEO's cultural heritage, traced back several generations, can affect corporate investment policies and overall organisational performance.

Research focussed on banks led by CEOs who were children and grandchildren of immigrants, who are exposed to the same legal, social, and institutional conditions as other U.S.-born CEOs, but they possess a cultural heritage influenced by the countries that their parents or grandparents have emigrated from, which is different from that of other CEOs.

It found that CEOs whose cultural heritage is characterized by lower individualism, higher uncertainty avoidance and higher restraint are more likely to outperform under pressure.

Results further suggest that cultural heritage plays a larger role in explaining competitive performance relative to genetic differences between people in their countries of origin.

The findings imply that CEOs whose ancestors were from Germany, Italy, Poland and Russia are associated with better bank performance under competitive pressures.

Whereas CEOs with British or Irish ancestors do not display different performance from the rest of the sample.

The study demonstrates that banks led by CEOs whose cultural heritage emphasises restraint, group-mindedness, and long-term orientation are safer, more cost efficient, and are associated with more cautious acquisitions which, in turn, explains their outperformance.

To identify cultural heritage, academics collected data on the country of origin of a CEO's ancestors from, the world's largest genealogy database, which has access to almost 17 billion family histories.

Researchers were able to trace a CEO's ancestors by using the name, birthplace, and birth year to identify parents, and then doing the same for parents to identify grandparents.

This allowed the team to map a CEO's family tree for up to six generations.

Researchers were able to identify a CEO's ancestral country, and how many generations ago ancestors moved to the U.S.

For instance, James Dimon, CEO of JP Morgan, is a third-generation descendant of Greek immigrants to the U.S. John Stumpf, a former CEO of Wells Fargo, is a third-generation descendant of German immigrants to the U.S.

Findings are consistent with the hypothesis that the culture of a CEO's ancestors influences his or her decision-making behaviour, firm policy choices and performance.

Results also show that the performance effects of cultural heritage depend on the market environment in which a CEO operates.

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