Skip to main content

Advertisement

SpringerLink
Log in

Culture and Corporate Governance: The Influence of Language and Religion in Switzerland

  • Research Article
  • Published:
Management International Review Aims and scope Submit manuscript

Abstract

We investigate the effect of culture on corporate governance using the extraordinary opportunity that the corporate landscape of Switzerland provides. Within a single institutional framework (e.g., Swiss federal corporate law), we use language (German and French) and religion (Roman Catholicism and Protestantism) as proxies for culture. These groups share a distinct set of values particularly in their tolerance for hierarchical structures. We observe that firms in Swiss–French areas and firms in Roman Catholic cantons are more likely to have one-tier boards, whereas two-tier boards are more prevalent in Swiss–German areas and Protestant cantons. Furthermore, board composition is significantly driven by language. In contrast, ownership and equity structure are not significantly related to culture.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. We restrict our analysis to Swiss–French and Swiss–German areas, because there are only four listed firms in the Italian-speaking area of Switzerland and none in the Rhaeto-Romanic area.

  2. In a similar setting, Belgium’s two important language regions, Flanders and Wallonia are culturally influenced by The Netherlands and France. However, unlike Switzerland, most firms are located in the bilingual Brussels area, and corporate governance does not seem to differ significantly between the two regions. In addition, Belgium has only one predominant religion which is Roman Catholic. We are grateful to Stijn De Dier (KU Leuven) for pointing us out the situation in Belgium.

  3. To our knowledge, no empirical studies have used Hofstede’s cultural dimension scores on the different Swiss regions other than the two language regions.

  4. Cantonal (state) law differs in some cases (e.g., tax law) and law enforcement is usually delegated to Switzerland’s 26 cantons. The Securities Exchange Act (SEC) of 1934 is an example of a federal law in the United States.

  5. As a matter of fact, many French Protestant Huguenots fled from France and established the watch-making industry in the Swiss Jura mountains.

  6. In democracies, the governance of the state is characterized by a separation of powers between the legislature, the executive, and the judiciary.

  7. These characterizations are provided by Hofstede (2013) (http://geert-hofstede.com). Hofstede’s basic framework measures cross-cultural differences assigned to four dimensions of national culture (power distance, uncertainty avoidance, individualism, and masculinity). Here, it should be noted that both the Swiss–Germans and the Swiss–French share an equally individualistic character (in contrast to collectivist), both believe in competition as a valid means to achieve merited job promotions (believed to a lesser extent in French-speaking Switzerland), and share a preference for avoiding uncertainty (more so in the French-speaking areas).

  8. Since 2001, French firms have been able to choose between a one-tier board structure (“conseil d’administration”) and a two-tier structure (“conseil de surveillance” and “directoire”); nevertheless, only 23 % of French firms have opted for the two-tier board structure (Heidrick and Struggles 2011).

  9. For instance, there are relatively more Germans in the German-speaking towns of Basel and Zurich, and there are relatively more French in the French-speaking town of Geneva (see Table 12 in “Appendix”).

  10. All three countries’ (Switzerland, Germany, and France) legal system is based on civil law (in contrast to common law).

  11. Firms can thus be defined as Swiss-French and Protestant, Swiss-French and Roman Catholic, Swiss–German and Protestant or Swiss–German and Roman Catholic.

  12. The two-sample Wilcoxon rank sum-test (or Mann–Whitney-test or U-test) verifies the null hypothesis that the true location shift of two distributions is equal to zero. Following a number of other studies, we verify the equality of medians using this test (e.g., Fahlenbrach et al. 2010).

  13. CIA––The World Factbook: https://www.cia.gov/library/publications/the-world-factbook/index.html

    (access on 12/09/2012).

  14. Official webpage of the Federal Department of Foreign Affairs: http://www.eda.admin.ch/eda/en/home/doc/infoch/chcul.html (access on 12/09/2012).

  15. “Röschti” is a famous Swiss potato dish. “Graben” is the German word for ditch.

  16. Johannes Calvin’s (1509–1564) doctrines were proclaimed from Geneva in the French-speaking part of Switzerland. At about the same time, another important reformer Ulrich Zwingli (1484–1531) was teaching in German-speaking Zurich.

  17. In 2005, the threshold for “significant” (large) shareholders was 5 %. However, this change had no particular influence on cumulated voting rights in any of the cultural areas.

  18. We investigated the 36 firms that changed their board structure (41 board changes) in 2005, 2007, and 2009. 24 board changes were from one-tier to two-tier and 17 from two-tier to one-tier. Only 3 board changes occurred in the Swiss-French area. Boards of the 15 newly listed firms were mostly one-tiered.

References

  • Aggarwal, R., & Goodell, J. W. (2010). Financial markets versus institutions in European countries: influence of culture and other national characteristics. International Business Review, 19(5), 502–520.

    Article  Google Scholar 

  • Aguilera, R. V., & Jackson, G. (2003). The cross-national diversity of corporate governance: dimensions and determinants. Academy of Management Review, 28(3), 447–465.

    Google Scholar 

  • Aguilera, R. V., & Jackson, G. (2010). Comparative and international corporate governance. Academy of Management Annals, 4(1), 485–556.

    Article  Google Scholar 

  • Armour, J., Deakin, S., Sarkar, P., Siems, M., & Singh, A. (2009). Shareholder protection and stock market development: an empirical test of the legal origins hypothesis. Journal of Empirical Legal Studies, 6(2), 343–380.

    Article  Google Scholar 

  • Arrunada, B. (2010). Protestants and Catholics: similar work ethic, different social ethic. Economic Journal, 120(547), 890–918.

    Article  Google Scholar 

  • Barro, R. J., & McCleary, R. M. (2003). Religion and economic growth across countries. American Sociological Review, 68(5), 760–781.

    Article  Google Scholar 

  • Bebchuk, L. A., & Roe, M. J. (1999). A theory of path dependence in corporate ownership and governance. Stanford Law Review, 52(1), 127–170.

    Article  Google Scholar 

  • Beck, T., Demirgüç-Kunt, A., & Levine, R. (2003). Law, endowments, and finance. Journal of Financial Economics, 70(2), 137–181.

    Article  Google Scholar 

  • Beck, T., & Webb, I. (2003). Economic, demographic, and institutional determinants of life insurance consumption across countries. World Bank Economic Review, 17(1), 51–88.

    Article  Google Scholar 

  • Becker, B., Cronqvist, H., & Fahlenbrach, R. (2008). Estimating the effects of large shareholders using a geographic instrument. Working Paper, Swedish House of Finance, Stockholm.

  • Becker, S. O., & Woessmann, L. (2009). Was Weber wrong? a human capital theory of Protestant economic history. Quarterly Journal of Economics, 124(2), 531–596.

    Article  Google Scholar 

  • Black, B. S., & Khanna, V. S. (2007). Can corporate governance reforms increase firm market values? Event study evidence from India. Journal of Empirical Legal Studies, 4(4), 749–796.

    Article  Google Scholar 

  • Boone, A. L., Field, L. C., Karpoff, J. M., & Raheja, C. G. (2007). The determinants of corporate board size and composition: an empirical analysis. Journal of Financial Economics, 85(1), 66–101.

    Article  Google Scholar 

  • Booth, J. R., Cornett, M. M., & Tehranian, H. (2002). Boards of directors, ownership, and regulation. Journal of Banking & Finance, 26(10), 1973–1996.

    Article  Google Scholar 

  • Boubraki, N., Bozec, Y., Laurin, C., & Rousseau, S. (2011). Incorporation law, ownership structure, and firm value: evidence from Canada. Journal of Empirical Legal Studies, 8(2), 358–383.

    Article  Google Scholar 

  • Bozec, Y., Rousseau, S., & Laurin, C. (2008). Law of incorporation and firm ownership structure: the law and finance theory revisited. International Review of Law and Economics, 28(2), 140–149.

    Article  Google Scholar 

  • Brügger, B., Lalive, R., & Zweimüller, J. (2009). Does culture affect unemployment? evidence from the Röstigraben. CESifo Working Paper Series No. 2714, Munich.

  • Buck, T., & Shahrim, A. (2005). The translation of corporate governance changes across national cultures: the case of Germany. Journal of International Business Studies, 36(1), 42–61.

    Article  Google Scholar 

  • Chakrabarti, R., Gupta-Mukherjee, S., & Jayaraman, N. (2008). Mars–Venus marriages: culture and cross-border M&A. Journal of International Business Studies, 40(2), 216–236.

    Article  Google Scholar 

  • Chui, A. C. W., Lloyd, A. E., & Kwok, C. C. Y. (2002). The determination of capital structure: is national culture a missing piece to the puzzle? Journal of International Business Studies, 33(1), 99–127.

    Article  Google Scholar 

  • Clarke, T., & dela Rama, M. J. (2006). The governance of globalization. In T. Clarke & M. J. dela Rama (Eds.), Corporate governance and globalization. London: Sage Publications.

    Google Scholar 

  • Coffee, J. C. (2001). The rise of dispersed ownership: the roles of law and the state in the separation of ownership and control. Yale Law Journal, 111(1), 1–82.

    Article  Google Scholar 

  • Coles, J. L., Daniel, N. D., & Naveen, L. (2008). Boards: does one size fit all? Journal of Financial Economics, 87(2), 329–356.

    Article  Google Scholar 

  • Daines, R. (2001). Does Delaware law improve firm value? Journal of Financial Economics, 62(3), 525–558.

    Article  Google Scholar 

  • Daniel, S. J., Cieslewicz, J. K., & Pourjalali, H. (2012). The impact of national economic culture and country-level institutional environment on corporate governance practices. Management International Review, 52(3), 365–394.

    Article  Google Scholar 

  • Demb, A., & Neubauer, F. (1992). The corporate board: confronting the paradoxes. Long Range Planning, 25(3), 9–20.

    Article  Google Scholar 

  • Denis, D. K., & McConnell, J. J. (2003). International corporate governance. Journal of Financial and Quantitative Analysis, 38(1), 1–36.

    Article  Google Scholar 

  • Djankov, S., Glaeser, E., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2003). The new comparative economics. Journal of Comparative Economics, 31(4), 595–619.

    Article  Google Scholar 

  • Doidge, C., Karolyi, G. A., & Stulz, R. M. (2007). Why do countries matter so much for corporate governance? Journal of Financial Economics, 86(1), 1–39.

    Article  Google Scholar 

  • Dorn, D., Fischer, J. A. V., Kirchgässner, G., & Sousa-Poza, A. (2008). Direct democracy and life satisfaction revisited: new evidence for Switzerland. Journal of Happiness Studies, 9(2), 227–255.

    Article  Google Scholar 

  • Douma, S. (1997). The two-tier system of corporate governance. Long Range Planning, 30(4), 612–614.

    Article  Google Scholar 

  • Dyck, A., & Zingales, L. (2004). Private benefits of control: an international comparison. Journal of Finance, 59(2), 537–600.

    Article  Google Scholar 

  • Faccio, M., & Lang, L. H. P. (2002). The ultimate ownership of Western European corporations. Journal of Financial Economics, 65(3), 365–395.

    Article  Google Scholar 

  • Fahlenbrach, R., Low, A., & Stulz, R. M. (2010). Why do firms appoint CEOs as outside directors? Journal of Financial Economics, 97(1), 12–32.

    Article  Google Scholar 

  • Franke, R. H., Hofstede, G., & Bond, M. H. (1991). Cultural roots of economic performance: a research note. Strategic Management Journal, 12(S1), 165–173.

    Article  Google Scholar 

  • Gillan, S. L., & Starks, L. T. (2007). The evolution of shareholder activism in the United States. Journal of Applied Corporate Finance, 19(1), 55–73.

    Article  Google Scholar 

  • Glaeser, L., & Glendon, S. (1998). Incentives, predestination and free will. Economic Inquiry, 36(3), 429–443.

    Article  Google Scholar 

  • Glahe, F., & Vohries, F. (1989). Religion, liberty and economic development: an empirical investigation. Public Choice, 62(3), 201–215.

    Article  Google Scholar 

  • Goyer, M. (2006). Varieties of institutional investors and national models of capitalism: the transformation of corporate governance in France and Germany. Politics and Society, 34(3), 399–430.

    Article  Google Scholar 

  • Grinblatt, M., & Keloharju, M. (2001). How distance, language and culture influence stockholdings and trades. Journal of Finance, 56(3), 1053–1073.

    Article  Google Scholar 

  • Guiso, L., Sapienza, P., & Zingales, L. (2003). People’s opium? religion and economic attitudes. Journal of Monetary Economics, 50(1), 225–282.

    Article  Google Scholar 

  • Guiso, L., Sapienza, P., & Zingales, L. (2006). Does culture affect economic outcomes? Journal of Economic Perspectives, 20(2), 23–48.

    Article  Google Scholar 

  • Guiso, L., Sapienza, P., & Zingales, L. (2009). Cultural biases in economic exchange? Quarterly Journal of Economics, 124(3), 1095–1131.

    Article  Google Scholar 

  • Hansmann, H., & Kraakman, R. (2000). The end of history for corporate law. Harvard Law School John M. Olin Center for Law, Economics and Business Discussion Paper Series. Paper 280, Cambridge.

  • Hayward, R. D., & Kemmelmeier, M. (2011). Weber revisited: a cross-national analysis of religiosity, religious culture, and economic attitudes. Journal of Cross-Cultural Psychology, 42(8), 1406–1420.

    Article  Google Scholar 

  • Heidrick, & Struggles (2011). Challenging board performance: European corporate governance report 2011, Chicago. available at http://www.heidrick.com.

  • Hilary, G., & Hui, K. W. (2009). Does religion matter in corporate decision making in America? Journal of Financial Economics, 93(3), 455–473.

    Article  Google Scholar 

  • Hofstede, G. (1980). Culture’s consequences: international differences in work-related values. Beverly Hills: Sage Publications.

    Google Scholar 

  • Hofstede, G. (2013). National cultural dimensions. http://www.geert-hofstede.com. Accessed 18 May 2013.

  • Hopt, K. J., & Leyens, P. C. (2004). Board models in Europe—recent developments of internal corporate governance structures in Germany, the United Kingdom, France, and Italy. European Company and Financial Law Review, 1(2), 135–168.

    Article  Google Scholar 

  • Jungmann, C. (2006). The effectiveness of corporate governance in one-tier and two-tier board systems: evidence from the UK and Germany. European Company and Financial Law Review, 3(4), 426–474.

    Article  Google Scholar 

  • Kahan, M., & Klausner, M. (1996). Path dependence in corporate contracting: increasing returns, herd behavior and cognitive biases. Washington University Law Quarterly, 74(2), 347–366.

    Google Scholar 

  • Kang, J. K., & Kim, J. M. (2008). The geography of block acquisitions. Journal of Finance, 63(6), 2817–2858.

    Article  Google Scholar 

  • Khanna, T., Kogan, J., & Palepu, K. (2006). Globalization and similarities in corporate governance: a cross-country analysis. Review of Economics and Statistics, 88(1), 69–90.

    Article  Google Scholar 

  • Kogut, B., & Singh, H. (1988). The effect of national culture on the choice of entry mode. Journal of International Business Studies, 19(3), 411–432.

    Article  Google Scholar 

  • La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (1999a). Corporate ownership around the world. Journal of Finance, 54(2), 471–517.

    Article  Google Scholar 

  • La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2008). The economic consequences of legal origins. Journal of Economic Literature, 46(2), 285–332.

    Article  Google Scholar 

  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1997). Trust in large organizations. American Economic Review, 87(2), 333–338.

  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1998). Law and finance. Journal of Political Economy, 106(6), 1113–1155.

    Article  Google Scholar 

  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1999b). The quality of government. Journal of Law Economics and Organization, 15(1), 222–279.

    Article  Google Scholar 

  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (2000). Investor protection and corporate governance. Journal of Financial Economics, 58(1–2), 3–27.

    Article  Google Scholar 

  • Lehn, K. M., Patro, S., & Zhao, M. (2009). Determinants of the size and composition of US corporate boards: 1935–2000. Financial Management, 38(4), 747–780.

    Article  Google Scholar 

  • Levine, D. H. (1979). Religion and politics, politics and religion: an introduction. Journal of Inter-American Studies and World Affairs, 21(1), 5–29.

    Article  Google Scholar 

  • Li, J., & Harrison, J. R. (2008). National culture and the composition and leadership structure of boards of directors. Corporate Governance, 16(5), 375–385.

    Article  Google Scholar 

  • Licht, A. N. (2001). The mother of all path dependencies: towards a cross-cultural theory of corporate governance systems. Delaware Journal of Corporate Law, 26(1), 147–205.

    Google Scholar 

  • Licht, A. N., Goldschmidt, C., & Schwartz, S. H. (2005). Culture, law, and corporate governance. International Review of Law and Economics, 25(2), 229–255.

    Article  Google Scholar 

  • Licht, A. N., Goldschmidt, C., & Schwartz, S. H. (2007). Culture rules: the foundations of the rule of law and other norms of governance. Journal of Comparative Economics, 35(4), 659–688.

    Article  Google Scholar 

  • Linck, J. S., Netter, J. M., & Yang, T. (2008). The determinants of board structure. Journal of Financial Economics, 87(2), 308–328.

    Article  Google Scholar 

  • Lowe, S. (1998). Culture and network institutions in Hong Kong: a hierarchy of perspectives. a response to Wilkinson: ‘Culture, institutions and business in East Asia’. Organization Studies, 19(2), 321–344.

    Article  Google Scholar 

  • Lüpold, M., & Schnyder, G. (2009). Horse, cow, sheep, or ‘thing-in-itself’? the cognitive origins of corporate governance in Switzerland, Germany, and the US, 1910s–1930s. Centre for Business Research, University of Cambridge Working Paper No. 383.

  • Mayer, K. (1951). Cultural pluralism and linguistic equilibrium in Switzerland. American Sociological Review, 16, 157–163.

    Article  Google Scholar 

  • Millet-Reyes, B., & Zhao, R. (2010). A comparison between one-tier and two-tier board structures in France. Journal of International Financial Management and Accounting, 21(3), 279–310.

    Article  Google Scholar 

  • Nickell, S. (1997). Unemployment and labor market rigidities: Europe versus North America. Journal of Economic Perspectives, 11(3), 55–74.

    Article  Google Scholar 

  • Noland, M. (2005). Religion and economic performance. World Development, 33(8), 1215–1232.

    Article  Google Scholar 

  • North, D. (1990). Institutions, institutional change, and economic performance. Cambridge: Harvard University Press.

    Book  Google Scholar 

  • Putnam, R. (1993). Making democracy work: civic traditions in modern Italy. Princeton: Princeton University Press.

    Google Scholar 

  • Rajan, R. G., & Zingales, L. (2003). The great reversals: the politics of financial development in the twentieth century. Journal of Financial Economics, 69(1), 5–50.

    Article  Google Scholar 

  • Roe, M. J. (1991). A political theory of American corporate finance. Columbia Law Review, 91(1), 10–67.

    Article  Google Scholar 

  • Roe, M. J. (1999). German codetermination and German securities markets. Columbia Journal of European Law, 5(2), 199–212.

    Google Scholar 

  • Ronen, S., & Shenkar, O. (1985). Clustering countries on attitudinal dimensions: a review and synthesis. Academy of Management Review, 10(3), 435–454.

    Google Scholar 

  • Schwartz, S. H. (1999). A theory of cultural values and some implications for work. Applied Psychology, 48(1), 23–47.

    Article  Google Scholar 

  • Shenkar, O. (2001). Cultural distance revisited: towards a more rigorous conceptualization and measurement of cultural differences. Journal of International Business Studies, 32(3), 519–535.

    Article  Google Scholar 

  • Shleifer, A., & Vishny, R. (1997). A survey of corporate governance. Journal of Finance, 52(2), 737–783.

    Article  Google Scholar 

  • Siegel, J. I., Licht, A. N., & Schwartz, S. H. (2011). Egalitarianism and international investment. Journal of Financial Economics, 102(3), 621–642.

    Article  Google Scholar 

  • Slangen, A. H. L., & van Tulder, R. J. M. (2009). Cultural distance, political risk, or governance quality? towards a more accurate conceptualization and measurement of external uncertainty in foreign entry mode research. International Business Review, 18(3), 276–291.

    Article  Google Scholar 

  • Stahl, G. K., & Voigt, A. (2008). Do cultural differences matter in mergers and acquisitions? a tentative model and examination. Organization Science, 19(1), 160–176.

    Article  Google Scholar 

  • Storck, M. (2004). Corporate governance à la Française––current trends. European Company and Financial Law Review, 1(1), 36–59.

    Article  Google Scholar 

  • Stulz, R. M., & Williamson, R. (2003). Culture, openness, and finance. Journal of Financial Economics, 70(3), 313–349.

    Article  Google Scholar 

  • Tang, L., & Koveos, P. E. (2008). A framework to update Hofstede’s cultural value indices: economic dynamics and institutional stability. Journal of International Business Studies, 39(6), 1045–1063.

    Article  Google Scholar 

  • Tihanyi, L., Griffith, D. A., & Russell, C. J. (2005). The effect of cultural distance on entry mode choice, international diversification, and MNE performance: a meta-analysis. Journal of International Business Studies, 36(3), 270–283.

    Article  Google Scholar 

  • Weber, M. (1930). The protestant ethic and the spirit of capitalism. New York: Harper Collins.

    Google Scholar 

  • White, H. (1980). A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica, 48(4), 817–838.

  • Williamson, O. E. (2000). The new institutional economics: taking stock, looking ahead. Journal of Economic Literature, 38(3), 595–613.

    Article  Google Scholar 

  • Wymeersch, E. (1998). A status report on corporate governance rules and practices in some Continental European states. In K. J. Hopt, H. Kanda, M. J. Roe, E. Wymeersch, & S. Prigge (Eds.), Comparative corporate governance: the state of the art and emerging research. Oxford: Clarendon Press.

    Google Scholar 

  • Yoshikawa, T., Tsui-Auch, L. S., & McGuire, J. (2007). Corporate governance reform as institutional innovation: the case of Japan. Organization Science, 18(6), 973–988.

    Article  Google Scholar 

Download references

Acknowledgments

I thank Thomas Clarke, Tom Kirchmaier, the three anonymous referees, and the participants at the XIII April International Academic Conference on Economic and Social Development (2012) in Moscow for their very helpful comments and discussions. I thank Hermione Miller-Moser for her editorial assistance. I acknowledge the research grant by the Föderverein WWZ (B-119). This paper is based on Chapter 4 of my PhD thesis: “Corporate Governance in Switzerland”, University of Basel, 2011. Part of this paper has been written while I was a visiting scholar at the University of Technology, Sydney and I thank the University of Manchester for providing me with access to BoardEx during my research stay at the Manchester Business School.

Author information

Authors and Affiliations

  1. Faculty of Business and Economics, University of Basel, Basel, Switzerland

    Christophe Volonté

Authors
  1. Christophe Volonté
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Christophe Volonté.

Appendix

Appendix

Table 11 Hofstede’s cultural dimensions
Full size table
Table 12 Population in Switzerland (2010)
Full size table

.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Volonté, C. Culture and Corporate Governance: The Influence of Language and Religion in Switzerland. Manag Int Rev 55, 77–118 (2015). https://doi.org/10.1007/s11575-014-0216-5

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11575-014-0216-5

Keywords

Search

Navigation