Culture and Firms

Culture and Firms

Gu Zhihui, Hao Liang, Hanyu Zhang

Series number :

Serial Number: 

Date posted :

April 21 2022

Last revised :

April 21 2022
SSRN Share


  • culture • 
  • Corporate behavior • 
  • Confucianism • 
  • firm value

We study how societal culture shapes business activities and corporate behavior by leveraging data on the locations of Confucian schools in Ancient China.

The number of historic Confucian schools surrounding a current firm’s location proxies for the firm’s exposure to Confucianism, the dominant culture in China over the last two thou- sand years, and is immune to the subjectivity and selection problems of most culture measures. We find systematic differences in corporate behavior across regions based on their varying exposure to Confucianism. Listed companies more exposed Confucianism make greater social contributions, provide greater employee protection, and have higher entertainment expenses, more patents, and more trade credits. We argue that these corporate attributes match the five basic virtues of Confucianism: benevolence (Ren), righteousness (Yi ), courteousness (Li ), wisdom (Zhi ), and trustworthiness (Xin). Our results cannot be explained by other cultural traits and are robust to various checks, including using the number of renowned Confucian scholars in the Ming Dynasty and the regional death rate in the Taiping Rebellion as instrumental variables. The effects are weaker in cities with Mao-indoctrinated leaders (whose ideology suppresses Confucianism) and high levels of market-orientation and in firms with non-Chinese directors on board. Stronger Confucianism is associated with greater profitability and growth.


Real name:
Research Member
Singapore Management University, Lee Kong Chian School of Business
Real name:
Hanyu Zhang
Real name:
Gu Zhihui