Does culture affect valuation?
Short answer: Yes. Culture's impact on valuation is undeniable.
While there’s no widely accepted valuation model that puts a dollar figure on culture, there’s plenty of credible evidence from academic studies, financial markets, M&A data, and consulting frameworks that strong organisational culture increases firm value. Despite this, because culture isn’t explicitly recorded on the balance sheet, many businesses under-invest in it.
Culture drives employee engagement, innovation and retention - all of which improve productivity and reduce cost. These benefits flow through to stronger EBITDA, reduced risk, and better long-term value. For instance, Gallup research shows companies in the top quartile for employee engagement have 21% higher profitability than the average.
Evidence linking culture to financial performance and valuation
Surveys of executives and CEOs consistently show that culture is inseparable from value. Research from Duke University and Columbia Business School found 92% of executives believe strengthening culture increases firm value. A third said they would reduce their offer price by 10–30% due to culture misalignment.
More than half said they would walk away from an M&A deal if the target’s culture didn’t fit.
Closer to home, Massey University’s 2025 CEO survey revealed similar results: 88% of New Zealand CEOs ranked culture as a top three driver of value, 95% said improving culture would boost performance, and nearly half would abandon an acquisition over cultural mismatch. For founders eyeing growth or exit, culture could be the difference between a premium valuation and a discounted one.
The markets back this up. A long-running study by Alex Edmans found that companies on Fortune’s 100 Best Companies to Work For list outperformed peers by 2.3–3.8% annually, while Impax Asset Management’s culture index shows companies in the top 20% of culture scores deliver stronger shareholder returns.
And the evidence isn’t just global. Kiwi tech firm Boost tracked culture using TinyPulse and saw a 53% increase in profit, 16% team growth, and a national award win. A clear signal that investing in culture isn’t soft, it delivers measurable ROI and directly supports valuation.
Valuation approaches that reflect culture (even if indirectly)
While no off-the-shelf valuation model includes "culture" as a line item, there are ways to account for its impact:
Comparable Multiples. Investors may apply a premium (0.5–1.0x on EBITDA) for companies known to have strong cultures (Interviews cited in McKinsey, 2021).
Scorecard and KPI Models. Balanced scorecards and metrics linking culture to financial outcomes are supported by frameworks like Denison’s culture model (Denison Consulting).
Academic Econometric Model. Studies by Edmans, Li et al., and Park et al. link culture (measured via surveys or earnings call text analysis) to Tobin’s Q, a proxy for firm valuation (Edmans, 2011, Li et al., 2020, Park et al., 2021).
Intangible Asset Methods. Theoretical valuation methods like Multi-Period Excess Earnings or Relief-from-Royalty can be adapted to intangible drivers like culture.
M&A Due Diligence Framework. McKinsey, Deloitte and PwC have reported using culture assessment tools in M&A due diligence to adjust offer price and predict integration risk (McKinsey, 2021, PwC Culture Integration).
The research is clear: culture is an asset. While there’s no exact spreadsheet model to plug into a DCF, if you measure culture well and show how it drives the numbers, you can make a strong case that it adds real value.
