Egalitarianism and International Investment
Jordan I. Siegel
Harvard Business School
Amir N. Licht
Interdisciplinary Center (IDC) Herzliyah - Radzyner School of Law; European Corporate Governance Institute (ECGI)
Shalom H. Schwartz
Hebrew University of Jerusalem - Department of Psychology; National Research University Higher School of Economics
November 4, 2010
This study identifies how country differences on a key cultural dimension - egalitarianism - influence the direction of different types of international investment flows. A society's cultural orientation towards egalitarianism is manifested by intolerance for abuses of market and political power and a desire for protecting the weak and less powerful actors. We show egalitarianism to be based on exogenous factors including social fractionalization, dominant religion circa 1900, and war experience from the 19th century era of state formation. Controlling for a large set of competing explanations, we find a robust influence of egalitarianism distance on cross-national investment flows of bond and equity issuances, syndicated loans, and mergers and acquisitions. An informal cultural institution largely determined a century or more ago, egalitarianism exercises its effect on international investment via an associated set of consistent contemporary policy choices. But even after controlling for these associated policy choices, egalitarianism continues to exercise a direct effect on cross-border investment flows, likely through its direct influence on managers’ daily business conduct.
Number of Pages in PDF File: 41
Keywords: culture, informal institutions, social institutions, egalitarianism, cultural distance
JEL Classification: F21, F23, G32, G34, K22, K4, Z13working papers series
Date posted: May 1, 2006 ; Last revised: November 10, 2010
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