Organizational culture, firm-specific human capital, and employee turnover: evidence from a large-scale study of employer reviews and online resumes

Lunch Seminar in presence

Arianna Marchetti
London Business School

Extensive literature documents the central role that firm-specific human capital plays in employee turnover. However, the questions of how workers develop firm-specific human capital and why they do so despite the potential limitations on subsequent employment opportunities continue to be debated. We attempt to address both questions by proposing a novel mechanism through which workers may develop firm-specific skills: socialization in strong cultures. Building on prior work on human capital and organizational culture, we argue that working in strong cultures may lead workers to acquire knowledge of specific cultural elements and develop informal relationships with colleagues that are challenging to transfer across organizations.
We test these predictions on a sample of 16,668,259 employees working for 4,396 firms in the US between 2013 and 2018. We measure organizational turnover using online employee profiles and cultural strength using 640,783 employees’ company reviews on Glassdoor. We rely on an exogenous shock to the enforceability of formal employment contracts – a 2015 Pennsylvania Supreme Court ruling that weakened barriers to employee mobility – and explore its impact on organizations with stronger and weaker cultures. Using a difference-in-differences design, we find that following the shock, turnover increased significantly in organizations with weaker cultures but remained constant in organizations with stronger cultures. We further find that conditional on mobility, workers departing organizations with stronger cultures experienced lower increases in salary and seniority in their next role than employees departing organizations with weaker cultures. Finally, both results are driven by organizations requiring more informal integration of effort.

Arianna Marchetti is an Assistant Professor of Strategy & Entrepreneurship at London Business School. Her research lies at the intersection of strategy and organization. Arianna studies the interplay between formal organization design and organizational culture, and its implications for coordination and corporate performance. She is very passionate about ML and AI, and how they will change our approach to doing research in Management. Prior to joining academia, Arianna worked as a Consultant for EY in Italy. She earned her PhD in Management at INSEAD, and her BS and MS in Industrial Engineering from La Sapienza University in Rome.

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