Duong Publishes in Journal of International Accounting Research
National Culture and Corporate Governance
Duong, Salter and Kang (2016)
Journal of International Accounting Research
In an era of globalization and integration, does national culture still matter in corporate practices? Would there be a convergence in corporate governance globally?
On the one hand, Williamson’s (2000) synthesis proposes a multi-level model of the causal chain for particular antecedents of corporate governance. At the inception of this process are informal institutions, including national culture, religious values, norm and conventions. These informal institutions arise from both the instincts and life experiences of the people of a nation over a significant period, and they are the root of the more formal institutions that arise later. On the other hand, some corporate law scholars and policy advisors have indicated that capitalism would break down national barriers and create a uniform set of rules for corporate governance. Hansmann and Kraakman (2001) argue that globalization has triggered and enhanced the convergence of corporate governance toward a shareholder-oriented model despite the apparent divergence in institutions, share ownership and culture across borders.
Does national culture matter in corporate governance? Finding an answer to this question is the purpose of our study. Using the national culture attributes to the society’s rule preferences in Hofstede et al (2010), we construct a new national culture measure, Rule Preference Index, to capture the preference to have rules of people in different countries. Using a large sample of 12,909 firm-years from 41 countries over the period between 2002 and 2012, we document robust empirical evidences that our national culture measure, Rule Preference Index, significantly explains the variation in corporate governance practice (board of director structure, executive compensation policy, shareholder rights, and corporate vision and strategy) even after controlling for institutional factors and addressing endogeneity concerns. Our findings refute the argument that there should be an optimal uniformity set of corporate governance rules globally. The findings also suggest that societal dimensions should be considered in all cross-national studies of corporate governance.