National culture and corporate governance in foreign firms traded on the NYSE

Abstract

The literature provides ample evidence of how standards and cultural values of a nation contribute to shaping formal institutions and corporate governance practices. This study is an empirical evaluation of the association between national culture and corporate governance in light of the tenets of Transaction Cost Economics Theory. The sample consisted of 229 foreign firms traded on the NYSE. National culture was divided into six dimensions (Hofstede, 1980) referring to the country: uncertainty avoidance, power distance, individualism, indulgence, masculinity and long-term orientation. Retrieved from the Bloomberg® database, the corporate governance characteristics (dependent variables) covered aspects of governance disclosure and structure. The data was submitted to quantitative analyses (descriptive statistics, Spearman correlations and regression tests). Significant relations were found between national culture variables and corporate governance variables (disclosure, board size, participation of women on the board and independent directors). All six national culture dimensions had an impact on governance disclosure and structure cross-nationally, although not all the hypotheses have been confirmed. Our study highlights the influence of national culture on firms and provides empirical data to subsidize the discussion on the role of national culture in research on finances and economics. Managers are advised to take national culture into account when adopting corporate governance practices in order to reduce transaction costs associated with national culture.