National Culture and the Value Implication of Corporate Governance

Abstract

We examine why corporate governance varies widely across countries and across firms, and why such variation matters. Using a proprietary database from Governance Metrics International on corporate governance practices across a large number of countries and firms for 2006-2011 and employing a hierarchical linear model specification, we find that the national cultural dimension of individualism is positively associated with, whereas the national cultural dimension of uncertainty avoidance is negatively associated with, firm-level corporate governance scores. Within countries, there is a positive association between firm-level corporate governance scores and firm value; however, across countries, the association is negative or zero.

Keywords: corporate governance; firm value; hierarchical linear model; individualism; national culture; uncertainty avoidance

JEL Classification: G18, G31, G32