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.
Résumé
Il est bien connu que les pratiques de gouvernance au niveau de l’entreprise varient principalement entre pays plutôt qu’au sein des pays, mais les facteurs liés aux pays tels que les institutions légales et financières expliquent moins de 50% de cette variation entre les pays. Dans cet article, nous montrons que deux dimensions de la culture nationale – l’individualisme et le contrôle de l’incertitude – couvrent environ 90% des effets liés aux pays et dépassent les variables explicatives au niveau des pays utilisées dans la littérature antérieure. Nous argumentons que la culture fonctionne comme un compromis entre l’expertise managériale et la certitude du contrôle, un compromis largement négligé dans la littérature antérieure qui explique seulement la préférence d’un pays pour l’approche anglo-saxonne versus l’approche de contrôle direct pour la gouvernance. En cohérence avec cet argument, nous trouvons que l’effet de la culture sur la gouvernance d’entreprise varie selon les entreprises avec des besoins différents concernant l’expertise managériale et la certitude du contrôle. Nous trouvons aussi que la culture interagit avec d’autres facteurs pour déterminer la gouvernance au niveau de l’entreprise.
Resumen
Es bien sabido que las prácticas de gobernanza corporativa a nivel de la empresa varían principalmente entre países y no dentro de ellos, pero factores a nivel nacional como las instituciones legales y financieras explican menos del 50% de las variaciones entre países. En este artículo mostramos que dos dimensiones de cultural nacional – el individualismo y la evitación de la incertidumbre – capturan cerca del 90% de los efectos fijos del país y superan a las variables explicativas a nivel país usadas en la literatura anterior. Argumentamos que la cultura funciona a través de compensar entre la experiencia gerencial y la certidumbre de control, una compensación en buena medida desatendida en la literatura anterior, que captura la preferencia de un país por el enfoque Anglosajón versus el enfoque de control directo de gobernanza. En concordancia con este argumento, encontramos que el efecto de cultura en la gobernanza corporativa varía entre empresas con diferentes necesidades por experiencia gerencia y certeza de control. Encontramos también que la cultura interactúa con otros factores para determinar la gobernanza a nivel de empresa.
Resumo
É sabido que as práticas de governança corporativa em nível de empresa variam principalmente entre países e não tanto dentro de países, mas fatores em nível de país, como instituições jurídicas e financeiras, explicam menos de 50% dessa variação entre países. Neste artigo, mostramos que duas dimensões da cultura nacional – individualismo e esquiva da incerteza – capturam cerca de 90% dos efeitos fixos do país e superam as variáveis explicativas em nível de país utilizadas na literatura existente. Argumentamos que a cultura funciona por meio de uma troca entre expertise gerencial e certeza de controle, uma troca largamente negligenciada pela literatura existente, que captura a preferência de um país pela abordagem anglo-saxônica versus a abordagem de controle direto para governança. Em consonância com esse argumento, verificamos que o efeito da cultura sobre a governança corporativa varia de empresa para empresa com diferentes requisitos de conhecimento gerencial e certeza de controle. Também concluímos que a cultura interage com outros fatores para determinar a governança em nível de empresa.
概要
众所周知,公司层面的公司治理实践主要是在国家之间而不是在国家内部有不同,但国家层面的因素,如法律和金融制度对这种跨国变异的解释小于50%。在这篇文章中,我们表明,国家文化的两个维度 – 个人主义和不确定性规避 – 捕捉到国家固定效应约90%,并超越以前文献中使用的国家层面的解释变量。我们认为,文化通过管理专长和控制确定性之间的权衡起作用,这个权衡大多被现有的文献所忽略,而且文化捕捉国家对盎格鲁 - 撒克逊模式对比直接控制治理模式的偏好。与此论点一致,我们发现,文化对公司治理的影响随公司对管理专长和控制确定性的不同的需要而变化。我们还发现,文化与其它因素互动来确定公司层面的治理。
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Accepted by Douglas Dow, Consulting Editor, 6 February 2017. This article has been with the authors for two revisions.
Appendix I: Variable Definitions
Appendix I: Variable Definitions
Variables | Definition | Source |
---|---|---|
Corporate governance ratings | ||
CGEng | Index measuring the overall quality of a firm’s governance | GMI |
CGEng GAP | The difference between a foreign firm’s CGEng and its matching US firm’s CGEng | As above |
DCG | Calculated by subtracting from a firm’s CGEng the lowest rating in the country year scaled by [48 minus the lowest CG rating in the country year] | As above |
Country-level variables | ||
IDV | The index of individualism | Hofstede (2001) |
UAI | The index of uncertainty avoidance | As above |
PDI | The index of power distance | As above |
MAS | The index of masculinity | As above |
EMBEDDED | The index of embeddedness | Schwartz (1994) |
IDV_71 | Updated individualism index among respondents that were born after 1958 | Beugelsdijk et al. (2015) |
UAI_71 | Updated uncertainty avoidance index among respondents that were born after 1958 | As above |
IDV_GDP_UPDATED | Updated individualism index with the average GDP per capita between 2006 and 2011 | Tang and Koveos (2008) |
UAI_GDP_UPDATED | Updated uncertainty avoidance index with the average GDP per capita between 2006 and 2011 | As above |
POL. RIGHTS | The average of the scores on political rights across 2006–2011 | Freedom House |
LEGAL | The multiplication of a country’s anti-self-dealing index and rule of law | Djankov et al. (2008), WGI |
CREDITOR RIGHTS | Creditor protection index | Djankov et al. (2007) |
MKT CAP/GDP | The ratio of a country’s stock market capitalization to GDP | World Bank |
GDP PC | The logarithm of a country’s GDP per capita | As above |
TRUST | The percentage of a country’s respondents that believe people in the country are generally trustworthy | World Values Survey |
PROTESTANT% | % of a country’s population that claim to be Protestant | McCleary and Barro (2006) |
CATHOLIC% | % of a country’s population that claim to be Catholic or Orthodox | As above |
MUSLIM% | % of a country’s population that claim to be Muslim | As above |
NONREL% | % of a country’s population that claim to be atheist | As above |
Firm-level variables | ||
SIZE | The logarithm of total assets in millions of US dollars (in 2011 dollars) | Worldscope |
DEBT/ASSETS | Total liabilities divided by total assets | As above |
CASH/ASSETS | The ratio of liquid assets to total assets | As above |
SALES GROWTH | The annual growth of net sales averaged over the past three years | As above |
CLOSELY HELD | The percentage of shares held by corporate insiders and blockholders with more than 5% ownership | As above |
EXTERNAL FINANCE | The US industry (based on three-digit SIC codes) median of need for external financing defined as capital expenditures minus cash flows from operations divided by capital expenditures | As above |
FOREIGN SALES | The portion of a firm’s net sales that comes from overseas | As above |
ADR | A dummy variable that takes a value of one if a firm is listed on a major US exchange either directly or through Level II or III American Depositary Receipts (ADRs), and zero otherwise | As above |
Q GAP | The difference between a foreign firm’s Tobin’s Q and its matching US firm’s Tobin’s Q | As above |
PPE/ASSETS | The ratio of property, plant, and equipment to assets | As above |
CAPX/ASSETS | The ratio of capital expenditure to assets | As above |
RD/ASSETS | The ratio of R&D expenses to assets | As above |
MARKET SHARE | A firm’s sales market share in the industry (defined by the first three SIC digits) in a country year | As above |
MATURITY | The ratio of retained earnings to common equity | As above |
Instrumental variables | ||
PRONOUN1,2,6 | The share of a country’s population that speaks a language belonging to each category of pronominal expression | Davis and Abdurazokzoda (2016) |
POLITENESS | The share of a country’s population that speaks a language exhibiting multiple politeness distinctions | As above |
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Griffin, D., Guedhami, O., Kwok, C.C.Y. et al. National culture: The missing country-level determinant of corporate governance. J Int Bus Stud 48, 740–762 (2017). https://doi.org/10.1057/s41267-017-0069-9
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DOI: https://doi.org/10.1057/s41267-017-0069-9