Steering the Intangible Wheel: The Effect of CEOs on Corporate Culture Change

In this study, we provide large-scale empirical evidence that leaders have a substantial impact on corporate culture change. We hypothesize that CEO succession leads to a higher level of corporate culture change, compared with the pre-succession period. In addition, the impact of CEO succession on culture change is contingent on executives’ commitment to the prior culture. Using novel measures of corporate culture based on machine learning, and 765 succession events in S&P 1500 firms from 2001 to 2018, we find an elevated corporate culture change following CEO successions. The effect of succession on culture change is robust in the subsample of predecessor death-driven successions, and stronger if (1) the predecessor does not stay on as board chair and (2) the successor is an outsider. Moreover, we measure corporate culture using both executive comments in earnings conference calls and employee reviews from Glassdoor and find that the culture change patterns are largely consistent across different levels of hierarchies. CEOs manage culture with “style” when they move across companies, and explain a substantial proportion of the variance in overall culture change. Overall, our study contributes to the literatures on strategic leadership and corporate culture by examining whether, when, and to what extent leaders affect corporate culture change.