Culture, Law, and Finance: Cultural Dimensions of Corporate Governance Laws

Abstract

Using cross-sectional samples of nations from around the world and drawing on two models of cultural dimensions in cross-cultural psychology, we study the relations between investors' legal rights - as reflected in the indices of La Porta et al. (LLSV) - and national cultural profiles. We find that grouping countries according to legal families - the cornerstone of LLSV's legal approach - provides only a partial depiction of the universe of corporate governance regimes. Our findings cast doubt on the alleged supremacy of statutes in common law countries in protecting creditors and, hence, in protecting investors in general. We also find that indices of voting rights and creditor rights correlate with cultural dimensions, but that an index of remedial rights does not. These findings have implications for studying diversity and convergence in corporate governance systems and for a systematic analysis of the interface between law and culture.

JEL Classification: G34, K22, Z13