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    Corporate Purpose and Financial Performance
    11 Oct 2016Working Paper Summaries

    Corporate Purpose and Financial Performance

    by Claudine Gartenberg, Andrea Prat, and George Serafeim
    An organization’s purpose is not a formal announcement, but depends on the employees believing in and acting to promote that purpose. This study provides evidence about whether employee beliefs in a strong corporate purpose are associated with superior or inferior financial performance. It shows that organizations where middle managers and salaried professionals feel a strong sense of purpose and have clarity about their job responsibilities and tasks experience superior future financial performance. There was no association for senior executives, sales, or hourly workers.
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    Author Abstract

    We construct a measure of corporate purpose within a sample of US companies based on approximately 500,000 survey responses of worker perceptions about their employers. We find that this measure of purpose is not related to financial performance. However, high purpose firms come in two forms: firms that are characterized by high camaraderie between workers, and firms that are characterized by high clarity from management. We document that firms exhibiting both high purpose and clarity have systematically higher future accounting and stock market performance, even after controlling for current performance, and that this relation is driven by the perceptions of middle management and professional staff rather than senior executives, hourly, or commissioned workers. Taken together, these results suggest that firms with employees that maintain strong beliefs in the meaning of their work experience better performance.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: September 2016
    • HBS Working Paper Number: HBS Working Paper #17-023
    • Faculty Unit(s): Accounting and Management
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    George Serafeim
    George Serafeim
    Charles M. Williams Professor of Business Administration
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