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Explaining diversity in the worldwide diffusion of codes of good governance

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Abstract

Extending earlier literature on diffusion of codes of good governance (CGGs) by integrating the effect of national culture, this study offers a novel perspective on cross-national diversity in the worldwide diffusion of corporate governance best practices. We argue that particular cultural dimensions affect the indicators (i.e., total number of codes per country and identity of issuing organizations) of such diffusion. For a sample of 67 countries our analysis reveals that individualist cultures have a stronger tendency to develop CGGs. In cultures with a high receptivity to power differences there is a higher probability that the first issuers are the government, directors’ or professional associations; whereas with low receptivity, the stock exchange and investors’ groups of issuers are more likely to initiate the first code. The effects of culture remain significant even after accounting for differences in legal systems and economic institutions, indicating that national culture may serve as a comprehensive indicator of the regulatory stance with respect to good governance. Indeed, the effect size is large enough to give pause (e.g., to a location choice), and possibly has relevance for strategic decision-making by international companies.

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Notes

  1. For consistency reasons, we will refer to CGGs, as used in the reference study; however, both terms – codes of good governance and corporate governance codes – are used interchangeably in the literature.

  2. The comply-or-explain principle prevails in most European countries. The mandatory disclosure of (non-)compliance information is separately legitimized, for instance by law in the Netherlands and Germany or by incorporation in the listing requirements in the UK; however, the meaning of the principle is not the same across all countries. In the Netherlands the law requires the explanation of non-compliance, whereas in Germany a statement of (non-)compliance without motivation is required.

  3. Several issues have been associated with Hofstede's dimensions: first, the dimensions are culturally bound; second, there is no mention of the need to ensure equivalence of meanings in the cross-cultural data collection process (Schwartz, 1994); and third, the dimensions are too broad, and some other important value dimensions may have not been included (Kwok & Tadesse, 2006). However, our choice of Hofstede's model is motivated, first, by the generation of data loss and reduction of the scale of our study (with GLOBE and Schwartz data respectively our sample is reduced from 67 to 44 and from 67 to 31 countries for the issuance, and from 59 to 39 and from 59 to 28 countries for the identity); second, by the work-related nature of Hofstede's values; and third, by the culture-level nature of these dimensions.

  4. Four bipolar cultural dimensions (individualism, power distance, masculinity and uncertainty avoidance) covering 50 countries were originally developed in the 1980s, based on a survey conducted at the IBM subsidiaries around the world (Hofstede, 1997). Based on research conducted between 1991 and 2003, Hofstede expanded his sample by adding 17 new countries. A fifth dimension, long-term orientation, which covers only 23 countries, was added later on; however, we have not included it in our analysis. According to Yeh and Lawrence (1995), individualism and long-term orientation are highly interrelated, and may measure the same underlying cultural values.

  5. Building on the general idea that national cultural differences create variety in relatively uniform corporate governance practices, we have derived relationships that specify more detailed characteristics of this relationship. Our hypotheses therefore reflect meaningful partial effects underlying the overall relationship. Jointly they imply that culture is presumed to generate the cross-national diversity in diffusion of CGGs through the dimensions of individualism, power distance and uncertainty avoidance. In addition, since masculinity is considered as the trait that distributes roles between genders as well as perceptions of assertiveness and competitiveness, we believe that this dimension, if anything, may have an effect on the content rather than on the diffusion of CGGs. Despite this, we have included the four cultural dimensions in our data analysis.

  6. The table of data on the number of codes and the issuer of the first national code is available on request.

  7. To capture the diffusion over time we have used two controls: the stock of codes; and the first year of issuance of the first national CGG, measured in terms of length of time over a 30-year period. Since both controls capture a similar trend, and to avoid multicollinearity, we have included only the stock of codes in our test.

  8. The tables of results of marginal effects and the size effects are available from the authors on request.

  9. In order to test the robustness of our findings we have double-checked our analysis by applying two alternative cultural models (GLOBE, House et al., 2004 and Schwartz, 1994). These results reveal similar patterns related to the hypothesized links, allowing the same qualitative conclusions on the influence of culture on indicators of diffusion. The results are available from the authors on request.

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Acknowledgements

We are grateful for comments and suggestions at various stages from Ruth Aguilera, Rob Alessie, Sjoerd Beugelsdijk, Rodolphe Durand, Tim Fawcett, Igor Filatotchev, Michel Goyer, Jan Jacobs, Ayse Saka, Arjen Slangen, Arndt Sorge and Gerwin van der Laan. We thank Witold Henisz, the JIBS Editor and three anonymous referees for their helpful and extensive comments. An earlier draft of this paper was presented at the annual meeting of the Academy of Management, Atlanta, USA, August 2006, and the 22nd EGOS Colloquium, Bergen, Norway, July 2006.

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  1. Faculty of Economics and Business, University of Groningen, Groningen, The Netherlands

    Ilir Haxhi & Hans van Ees

  2. Amsterdam Business School, University of Amsterdam, Amsterdam, The Netherlands

    Ilir Haxhi

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  1. Ilir Haxhi
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Correspondence to Ilir Haxhi.

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Accepted by Witold Henisz, Area Editor, 14 March 2009. This paper has been with the authors for three revisions.

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Haxhi, I., van Ees, H. Explaining diversity in the worldwide diffusion of codes of good governance. J Int Bus Stud 41, 710–726 (2010). https://doi.org/10.1057/jibs.2009.39

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