National Culture and Corporate Governance

• In Event: Culture and Accounting

Abstract

This paper examines the influence of national culture measured by Rule Preference Index on corporate governance. Using Williamson’s (2000) framework, we postulate that national culture can shape the contracting environments by serving as an informal constraint that affects human actors’ incentives and choices in corporate governance. We hypothesize that national culture can explain cross-country variations in corporate governance after controlling for legal, political, financial, and economic institutions. We use Hofstede’s (1980, 2010) and GLOBE cultural dimensions to construct a Rule Preference Index for a sample of 12,909 firm-year observations from 41 countries over the period 2004-2012. We then employ hierarchical linear modeling approach to isolate the effects of firm-level and country-level variables and find robust evidence that firms (and countries) with high Rule Preference Index tend to have better corporate governance.

Authors

• Stephen Brian Salter, The University of Texas at El Paso

• Helen Kang, UNSW Australia

• Hong K Duong, The University of Texas at El Paso

• James Schneringer,, The University of Texas at El Paso