Culture and Law in Corporate Governance

Abstract

Understanding the role of culture in corporate governance has become a subject of growing importance. Today, no institutional analysis of corporate governance systems would be complete without considering the cultural environment in which such systems are embedded. This paper provides an overview of different accounts on how culture interacts with the law - especially corporate law - to shape corporate governance and on how this may help explain diversity and persistence in corporate governance. Basic concepts in cultural analysis are first presented, together with prevalent theories of cultural dimensions and of social networks as social capital. Relying on this analytical framework, this paper reviews current research on culture’s consequences for corporate governance on issues such as legal transplants, the objectives of the corporation (corporate social responsibility), relations with investors and other stakeholders by way of disclosure and dividend distribution, executive compensation, and the operation, composition, and network structure of the board of directors.

Keywords: corporate governance, culture, corporate law, social institutions, social networks, board of directors, stakeholders, earnings management, dividend payouts, executive compensation

JEL Classification: D85, G02, G3, G34, G35, G38, K22, L2, L21, L26, Z1, Z13