The Mother of All Path Dependencies: Toward a Cross-Cultural Theory of Corporate Governance Systems

Abstract

The goal of this Paper is threefold. First, it points out the growing awareness among practitioners and theorists of the relevance of national culture to corporate governance and securities regulation. It shows that efforts to treat cross-cultural aspects so far have been few and sporadic and thus posits that a systematic cross-cultural theory of corporate governance systems is urgently needed. Second, this Paper introduces the central concepts and methodologies of cross-cultural psychology ("CCP") and demonstrates their potential usefulness for analyzing problems of the sort discussed here. It highlights the promise held by the CCP framework for producing testable hypotheses with regard to cultural features of corporate governance systems, in a fashion similar to standard analyses of corporate finance. Third, this Paper sketches out an outline for a cross-cultural theory of corporate governance systems based on the CCP framework by implementing it to fundamental issues like shareholding structures and the regulation of self-dealing, insider trading, and disclosure. It concludes that national cultures can be seen, metaphorically, as the mother of path dependence dynamics in the sense that they play a role in both the origin and in future development of corporate governance systems. The mode of analysis proposed in this Paper could be extended to other legal fields and also looks very promising for the study of law and social norms.

JEL Classification: G34, K22, Z1, Z13