National culture: The missing country-level determinant of corporate governance

Dale Griffin, Omrane Guedhami, Chuck C Y Kwok (), Kai Li () and Liang Shao
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Dale Griffin: University of British Columbia
Omrane Guedhami: University of South Carolina
Chuck C Y Kwok: University of South Carolina
Liang Shao: Hong Kong Baptist University

Journal of International Business Studies, 2017, vol. 48, issue 6, No 5, 740-762

Abstract: Abstract It is well known that firm-level corporate governance practices vary mainly between rather than within countries, but country-level factors such as legal and financial institutions explain less than 50% of this cross-country variation. In this article we show that two dimensions of national culture – individualism and uncertainty avoidance – capture about 90% of the country fixed effects and outperform the country-level explanatory variables used in prior literature. We argue that culture works through a tradeoff between managerial expertise and certainty of control, a tradeoff largely overlooked by prior literature, that captures a country’s preference for the Anglo-Saxon approach versus the direct control approach for governance. Consistent with this argument, we find that the effect of culture on corporate governance varies across firms with different needs for managerial expertise and certainty of control. We also find that culture interacts with other factors to determine firm-level governance.

Keywords: corporate governance; national culture; agency theory; managerial expertise; direct control (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (51)

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DOI: 10.1057/s41267-017-0069-9

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