The Impact of National Economic Culture and Country-Level Institutional Environment on Corporate Governance Practices Theory and Empirical Evidence

We posit that national cultural practices influence the institutional environment, which in turn has an influence on corporate governance practices. We empirically evaluate these relationships using structural equation modeling. We utilize measures of national culture from Culture, Leadership, and Organizations: The Globe study of 62 Societies. For the institutional environment, we employ the World Bank Worldwide Governance Indicators. Consistent with theory, we find a strong relationship between these constructs. We further find that the institutional environment mediates the relationship between national culture and corporate governance practices. Corporate governance practices include measures of board accountability, financial disclosure and internal controls, shareholder rights, executive compensation, takeover defenses and ownership base, and corporate accountability and are available from Governance Metrics International. As both culture and institutions are linked to corporate governance practices, efforts to change corporate governance practices around the world are best informed by an appreciation of cultural as well as institutional factors.