Is the Adaptability Dimension of Corporate Culture Associated with Earnings Quality and Tax Strategies?

Employing a novel approach, I use a unique data set from GlassDoor to examine the association between the Adaptability dimension of corporate culture and earnings quality and tax strategies by public corporations. I define corporate culture as an intangible asset that is a mechanism for social control throughout an organization consistent with O'Reilly et al. (2014). Prior research suggested correlations between corporate culture and firm outcomes (Hartnell et al., 2011), but has not investigated specific reporting behaviors using social media responses to derive an empiric value for corporate culture. Because 91% of surveyed executives (Graham et al., 2016b) believed corporate culture was important since it can affect reporting outcomes, it is important to examine the interactions between corporate culture and earnings quality and tax strategies. I find mixed results that suggests some aspects of lower earnings quality and some more aggressive tax strategies are significantly associated with a firm culture of Adaptability. Firms with a corporate culture of Adaptability are more likely to engage in accruals earnings management, have material internal control deficiencies, lower GAAP effective tax rates, higher UTB balances, more use of Tax Havens, and less real earnings management. Additionally, I test two other dimensions: Integrity and Results. First, firms with a corporate culture of Integrity are not associated with higher quality earnings and weakly associated with less tax avoidance. Secondly, firms with a corporate culture of Results are more likely to engage in accruals earnings management, but unlike Adaptability firms, are not associated with tax strategies. I also test all six dimensions of corporate culture and find my three test ( Adaptability, Integrity, Results) dimensions generally exhibit the same associations when examined separately. This does suggest that some dimensions may act as controls for others, so I examine and find that the corporate culture of Collaboration moderates risky behaviors by Adaptability firms. In sum, my examination suggest that the latent aspects of firms have an influence on firm behaviors beyond performance and should be scrutinized further to find other moderators, constraints, or ameliorate inefficiencies.