Management Research Review

Current state of corporate governance: global business and cultural analysis

Namporn Thanetsunthorn Rattaphon Wuthisatian
Article information:
To cite this document:
Downloaded by Universitas Sebelas Maret, UPT PERPUSTAKAAN UNS At 06:06 09 February 2017 (PT)

Namporn Thanetsunthorn Rattaphon Wuthisatian , (2016),"Current state of corporate governance:

global business and cultural analysis ", Management Research Review, Vol. 39 Iss 11 pp. 1431 -
1446
Permanent link to this document:
http://dx.doi.org/10.1108/MRR-03-2015-0061
Downloaded on: 09 February 2017, At: 06:06 (PT)
References: this document contains references to 49 other documents.
To copy this document: permissions@emeraldinsight.com
The fulltext of this document has been downloaded 352 times since 2016*
Users who downloaded this article also downloaded:
(2016),"Corporate governance and corporate performance: financial crisis (2008)", Management
Research Review, Vol. 39 Iss 11 pp. 1494-1515
(2016),"Convergence and divergence in corporate governance: An integrative institutional theory
perspective", Management Research Review, Vol. 39 Iss 11 pp. 1447-1471

Access to this document was granted through an Emerald subscription provided by emerald-
srm:604154 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald
for Authors service information about how to choose which publication to write for and submission
guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company
manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as
well as providing an extensive range of online products and additional customer resources and
services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the
Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for
digital archive preservation.

*Related content and download information correct at time of download.

 The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2040-8269.htm

Current state of corporate Corporate

governance
governance: global business and
cultural analysis
Namporn Thanetsunthorn 1431
Downloaded by Universitas Sebelas Maret, UPT PERPUSTAKAAN UNS At 06:06 09 February 2017 (PT)

College of Business, Benedictine University, Chicago, Illinois, USA, and

Received 15 March 2015
Rattaphon Wuthisatian Revised 23 May 2015
Accepted 14 December 2015
School of Entrepreneurship and Management, Shanghai Tech University,
Shanghai, China

Abstract
Purpose The purpose of this study is to explore the current state of corporate governance in various
aspects of business settings and to empirically examine the impact of national culture on corporate
governance performance, with a view of supporting business corporations in further enhancing the
effectiveness of their corporate governance system.
Design/methodology/approach A pooled sample of 9,003 companies drawn from 50 countries
across ten different regions is collected. A variety of statistical methods, including the paired sample
t-test, the ordinary least squares regression and the Pearson product-moment correlation coefficient are
implemented to analyze the current state of corporate governance. To empirically investigate the causal
relationship between national culture and corporate governance, the multivariate regression analysis is
also applied.
Findings This study proposes a broad set of the empirical findings regarding the current state of
corporate governance. Despite being accepted as a prerequisite building block for sustainable corporate
social responsibility (CSR), corporate governance is still receiving far less attention among business
corporations. The governance framework is widely adopted by business corporations, yet the intensity
of implementing corporate governance is significantly different across regions. The variation of the
intensity observed across regions can be explained by the national cultural characteristics that are all
likely to impact the degree to which corporations act in corporate governance manners. Corporate
governance performance is strongly related to three other aspects of socially responsible corporate
performance community, employee and environment.
Research limitations/implications This study provides both the motivation and a starting point
for further investigation in the milieu of corporate governance. It would be interesting for future
research to further explore the extent to which corporate governance has a positive indirect impact on
a firms financial performance. There is potential to provide a more comprehensive analysis of the
interaction effect of national culture and geographic region on corporate governance performance of the
corporations embedded in that region through a statistical interaction method. In addition, it may be
interesting to integrate corporate financial performance (CFP) into the analysis to identify a specific
type/practice of the corporate governance that could provide the highest return on the investment. Last,
another interesting avenue for future research would be to explore the ethical mechanisms that have
been institutionalized to promote corporate governance practices.
Practical implications The present study is beneficial to both business corporations and policy
makers. In essence, the study can potentially draw managers attention to applying modified corporate Management Research Review
Vol. 39 No. 11, 2016
governance strategies according to their national culture. Furthermore, the study can alter business pp. 1431-1446
corporations to promote a strong corporate governance regime in chorus to CSR strategies so as to Emerald Group Publishing Limited
2040-8269
promote CSR development, which ultimately results in higher levels of competitiveness and CFP. In DOI 10.1108/MRR-03-2015-0061
 MRR addition, policy makers who are responsible for inward foreign investment can use the findings of this
study to evaluate the investors potential governance adoption.
39,11 Originality/value The findings of this study are useful in encouraging the business corporations to
further strengthen their corporate governance system. This study helps to fill the theoretical void
regarding the cultural impact on corporate governance by exploring a broad set of national cultural
characteristics under which good corporate governance is more or less likely to occur.
1432 Keywords National culture, Corporate social responsibility, Corporate governance,
Corporate financial performance
Downloaded by Universitas Sebelas Maret, UPT PERPUSTAKAAN UNS At 06:06 09 February 2017 (PT)

Paper type Research paper

Introduction
Concerns about corporate governance, ethics, transparency and accountability have
grown significantly over the decades. Not only has the issues become commonplace
among business corporations but also a body of academic literature has also emerged
around it. Under the umbrella of corporate governance, besides caring for shareholders
wealth and fortunes, attuning business activities to the interests of different
stakeholders outside the corporation is equally significant. This is where an idea on the
cross-connects and interfaces between corporate governance and corporate social
responsibility (CSR) comes to light and is the focus of scholarly attention.
Recently, most of the theoretically oriented research on the subject has focused on
investigating the connection between corporate governance and CSR (Kendall, 1999; OECD,
1999; Bhimani and Soonawalla, 2005; Hancock, 2005; Ho, 2005; Elkington, 2006). Most often,
the emphasis has been on determining the extent to which corporate governance is an
additional pillar of CSR; corporate governance is functioned coincidentally with CSR; the
practices of corporate governance and those of CSR are mutually exclusive or interrelated
(Jamali et al., 2008). So far, insights from much of the literature have shed light on an
interlinked relationship between corporate governance and CSR. In particular, this literature
has suggested that a good corporate governance system is a reinforcing mechanism and
prerequisite building block for CSR and sustainable development (Rosam and Peddle, 2004;
Grosser and Moon, 2005; Hancock, 2005; Van den Berghe and Louche, 2005; Elkington, 2006;
Perrini et al., 2006).
Beyond the efforts to theoretically clarify the links between corporate governance
and CSR, another stream of academic literature has focused on investigating the
differences between corporate governance practices across countries and regions, as
well as identifying the key factors explaining these differences (Roe, 1994, 2003; La Porta
et al., 1997, 1998, 1999, 2000, 2002; Bebchuk and Roe, 1999; Licht, 2001). Most of the
academic research on this subject has labeled the institutional conditions such as legal
system and political intervention as key determinants of corporate governance (La Porta
et al., 1997, 1998, 1999, 2000, 2002; Beck et al., 2003; Gourevitch, 2003). Little theoretical
attention has been paid to understanding how the informal institutional conditions,
particularly national culture, affect the degree to which corporations engage in
corporate governance practices and behave in corporate governance ways.
The evidence illustrating the significance of cultural conditions in determining the
extent to which corporations act in governance ways are the works of Stulz and
Williamson (2003) and Licht et al. (2005). However, the insights of those previous studies
are obscure in their analysis. Stulz and Williamson (2003) explored whether the
differences in culture can explain variations in investor protection using religion and
 primary language derived from the 2000 CIA World Factbook as proxies for culture. Corporate
Using religion and language as proxies for culture, however, fails to apprehend the governance
richness of cultural differences (Licht et al., 2005). Licht et al. (2005) examined in what
way the laws reflect countries national culture. The findings of the study were
demonstrated through a comparative analysis that combined classifications based on
cultural dimension and legal families, resulting in the incomprehensible part of the
comparative explanation (Matoussi and Jardak, 2012). 1433
It may be, however, pertinent to note that the current direction of research in
Downloaded by Universitas Sebelas Maret, UPT PERPUSTAKAAN UNS At 06:06 09 February 2017 (PT)

corporate governance is concentrating around the understanding of the relationship

between corporate governance and social responsibility, as well as the impacts of
institutional conditions on the practices of corporate governance. Therefore, to improve
the existing literature in a meaningful way, the primary contribution of this study is to
explore the current state of corporate governance around the world under the scholarly
proposition considering corporate governance as a reinforcing mechanism and
prerequisite building block for promoting CSR development. This global analysis will
provide business corporations with meaningful and competitive insights on how to
design and implement their corporate governance strategies more effectively in the
global markets, where multinational stakeholders are involved. In addition, the
secondary contribution is to address the skeptical relationship between cultural
condition and corporate governance in the literature by analyzing a broad set of national
cultural characteristics under which good corporate governance is likely to occur.

Data and methodology

The corporate governance ratings and the ratings of corporate social performance
related to community, employee and environment are collected from CSRHub Inc., a
private firm which publishes a long history of tracking and rating CSR performance of
business corporations around the world. In total, the CSRHub database contains the
official record of 9,143 companies from 104 countries located in ten different regions, and
the ratings on the four aspects of corporate performance are indexed based on a
100-point rating scale (poor-to-excellence scale).
Regarding the CSRHubs ratings methodology, CSRHub uses data from nine sources
of the premier Socially Responsible Investment also known as Environment, Social,
Governance (ESG) analysis firms namely, ASSET4 (Thomson Reuters), Carbon
Disclosure Project, EIRIS, Governance Metrics International (merged with Corporate
Library), IW Financial, MSCI (ESG Intangible Value Assessment and ESG Impact
Monitor), RepRisk, Trucost and Vigeo. Furthermore, the information from over 265
Non-Governmental Organizations (NGOs) such as foundations, associations, union
groups, and activist groups government databases, publications and research reports
is then augmented with other information from other major sources. Overall, more than
41 million pieces of data on CSR performance from over 291 data sources are combined
into a consistent set of CSR ratings.
To remove bias and inconsistency, the CSRHubs schema is developed according to the
GRIs G3.1 guideline. The CSRHubs schema involves the four key categories, where each
category consists of three subcategories. In essence, the CSRHub schema is tied to a
corporations CSR performance and based upon a 0-100 rating scale. A high score represents
positive rating (100 extremely positive rating). The CSR performance scores of a
corporation obtained from different data sources are then compared and analyzed to the
 MRR variations between data sources. Each source is weighted based on credibility and quality of
39,11 the sources, and, then, all of the data from different sources are combined together for
generating base ratings at the subcategory level. The rating for each of the 12 subcategories
is then aggregated to the 4 key categories. If there is no conclusive agreement between data
sources or corporations do not have enough information, these corporations ratings will be
excluded from the CSRHub database. As the CSRHub database has the large number of
1434 observations and data sources and the proprietary methods to process and adjust data, the
CSRHub database is a representative of the general state of knowledge about the social
Downloaded by Universitas Sebelas Maret, UPT PERPUSTAKAAN UNS At 06:06 09 February 2017 (PT)

performance of corporations and of the best-available information that fits to the objectives
of this study.
In statistics, a small number of observations, however, typically do not provide much
explanatory power and accurate prediction regarding the variation of interest variable.
Similarly, a country where there are a small number of companies that engage in
governance and CSR initiatives might not have potential power in detecting and
explaining the global trend of corporate governance and social responsibility. To
overcome this statistical issue, the study, therefore, excludes the country where there are
less than ten companies participating in the governance and socially responsible
initiatives, which ultimately reduces the observations to a total of 9,003 companies from
50 countries across ten different regions, namely, Africa, Asia-Pacific, Caribbean,
Eastern Asia, Europe, Middle East, North America, South America, South Asia and
Southeast Asia.
To analyze the current state of corporate governance, different types of statistical
methods are applied in this study. This study first provides descriptive statistics of the
globally current state of corporate governance as compared to that of the other three
specific dimensions of socially responsible corporate performance community,
employee and environment. The paired sample t-test is then performed to measure the
differences numerically and statistically. As noted above, there has been little attention
paid to investigating the impact of national culture on corporate governance. The study
applies a multivariate regression analysis to quantitatively infer the causal relationship
between national culture and corporate governance performance. Then, the degree of
linear interdependency between the corporate governance performance and the three
other dimensions of socially responsible corporate performance are analyzed using the
Pearson product-moment correlation coefficient.

Results and discussion

Result 1. The governance-related performance of corporations on average displays the
lowest rating as compared to the three dimensions of corporate social performance
As shown in Table I, the corporate governance performance receives the lowest average
rating (52.25 points), whereas the environment-related CSR performance receives the
Table I.
Numerical
comparison of
governance-related Variable N Mean SD Minimum Maximum
performance and
three dimensions of Community 8,535 54.49 9.94 16 90
socially responsible Employee 8,300 56.25 10.65 7 91
corporate Environment 8,277 56.65 10.20 15 94
performance Governance 8,610 52.25 10.88 14 93
 highest average rating (65.65 points). The average rating of community-related CSR Corporate
performance (54.49 points) is slightly lower than the average rating of employee-related CSR governance
performance (56.25 points), but both are still higher than the average rating of the
governance-related performance of corporations. The standard deviations of all four aspects
of corporate performance are varied between 9 and 11 points. Further support for differences
among four aspects of corporate performance can be seen graphically in Figure 1.
To further explore these differences, the paired sample t-test is applied to assess the level 1435
of statistical difference. As shown in Table II, the t-test strongly confirms that the
Downloaded by Universitas Sebelas Maret, UPT PERPUSTAKAAN UNS At 06:06 09 February 2017 (PT)

governance-related performance has the lowest average rating as compared to the other
three dimensions of socially responsible corporate performance (governance-related
performance is less than environment-related CSR performance, with t 37.53 at 1 per
cent level of significance, less than employee-related CSR performance, with t 34.11 at 1
per cent level of significance, and less than community-related CSR performance, with t
19.10 at 1 per cent level of significance). Furthermore, the t-test reveals that the
environment-related CSR performance has a higher rating across the board
(environment-related CSR performance is greater than employee-related CSR performance,
with t 3.57 at 1 per cent level of significance, and greater than community-related CSR
performance, t 19.27 at 1 per cent level of significance). The t-test also confirms that the
average employee-related CSR performance is higher than the community-related CSR
performance at 1 per cent level of significance with t 15.06.

Figure 1.
A graphical
comparison of
governance-related
performance and the
three dimensions of
socially responsible
corporate
performance

Paired sample t-statistics

GOV vs ENV 37.53***

GOV vs EMP 34.11***
GOV vs COM 19.10***
ENV vs EMP 3.57***
ENV vs COM 19.27***
EMP vs COM 15.06***
Table II.
Notes: * p 0.10; ** p 0.05; *** p 0.01 Paired sample t-test
 MRR In view of the paired sample t-test results, it is clearly evident that the
39,11 governance-related performance in general is underperformed as compared to socially
responsible corporate performance regarding community, employee and environment
aspects. This implies that business corporations pay far less attention to corporate
governance initiatives and are more likely to be concerned about the impact of their
operation on society rather than the interests of their shareholders. It would be very
1436 interesting to further explore into the second-level state of corporate governance in a
view of the geographic region. The following results show a manifestation and intensity
Downloaded by Universitas Sebelas Maret, UPT PERPUSTAKAAN UNS At 06:06 09 February 2017 (PT)

of the corporate governance across regions.

Result 2. The governance framework is widely manifested by most corporations, yet

the intensity of implementing governance principles and guidelines is significantly
different across regions
Result 2 suggests that the governance framework is universally accepted as a
fundamental standard and practice among business corporations and is widely
implemented through corporate-level policies and standards. However, the intensity of
implementing governance principles and guidelines in each region considerably differs.
This implies that corporations in different regions have differences in the perceived
value of corporate governance. An indication in support of Result 2 is shown in Table III
and Figure 2, in which the sample of 9,003 corporations is classified based upon the
region where their headquarters are domiciled. This study finds that the average
governance-related performance of corporations across different regions is varied
within the range from 58.48 to 46.47 points. In particular, the governance-related
performance in most of the observed regions is in the range of 50-60 points, and there are
only two regions, namely, Eastern Asia and Caribbean, where the corporate governance
ratings have fallen below 50 points. In essence, the average governance-related
performance of the South Asia corporations (58.48 points) is higher than those of the
other observed regions, whereas the corporations located in Eastern Asia (46.47 points)
exhibit the lowest average governance-related performance across the board.
To examine whether these numerical differences presented in Table III are also
statistically significant, the ordinary least square (OLS) regression is applied to assess
the level of statistical significance where the governance-related performance is
regressed against the region-specific dummy variables:

Region N Mean SD Minimum Maximum

Africa 189 56.32 7.82 33 82

Asia-Pacific 415 55.44 7.63 33 86
Caribbean 62 48.89 11.34 26 78
Eastern Asia 1,278 46.47 10.96 14 93
Table III. Europe 1,797 57.25 9.15 20 88
Numerical Middle East 132 52.45 12.47 19 90
comparison of the North America 4,058 50.90 10.84 14 89
governance-related South America 251 54.56 9.09 29 75
performance by South Asia 197 58.48 10.13 29 85
region Southeast Asia 231 53.05 9.52 30 86
 Corporate
governance

1437
Downloaded by Universitas Sebelas Maret, UPT PERPUSTAKAAN UNS At 06:06 09 February 2017 (PT)

Figure 2.
Graphical
comparison of the
governance-related
performance by
region

N
GOVj 0 j
jDj j, (1)

where j j and j 1, 2, N, GOVj indicates the governance-related performance

of the corporations located in region j, Dj is a region-specific dummy variable taking a
binary value of either 0 or 1, which represents other regions and 0 and j indicate the
constant term and the slope coefficient, respectively. Equation (1) indicates that
the governance-related performance of the corporations located in region j serves as the
dependent variable that will be regressed on the region-specific dummy variables for
the corporations that are not located in the region j. Mathematically, there will be a set of
ten estimated models, as we have observed ten different regions:

GOVAfrica 0 1DAsia Pacific 2DCaribbean 9DSoutheast Asia i, (2)

GOVAsia Pacific 0 1DAfrica 2DCaribbean 9DSoutheast Asia i, (3)

GOVSoutheast Asia 0 1DAfrica 2DAsia Pacific 9DSouth Asia i. (4)

On the basis of regression analysis reported in Table IV, Model 9 shows that all of the
negative coefficients on regional dummies are statistically significant, except European,
which is not statistically different at any conventional level. This result confirms South
Asia has the highest rating of corporate governance-related performance and is the top
performer among the observed ten regions. Model 4 provides a strong confirmation to
the results of our descriptive statistics (Table III and Figure 2), which indicates Eastern
Asia is the poorest performing region in lieu of corporate governance, as the positive
coefficients on all of the regional dummies are statistically significant.
In addition, the estimated OLS regression allows us to further investigate how the
corporate governance-related performance in one specific region significantly differs
from those in other regions. Model 1 shows that the level of corporate
governance-related performance in Africa statistically differs from those in other
regions, except Asia-Pacific and Europe. Model 2 suggests further that the level of
 Downloaded by Universitas Sebelas Maret, UPT PERPUSTAKAAN UNS At 06:06 09 February 2017 (PT)

region
MRR
39,11

1438

Table IV.

of corporate

performance by
governance-related
analysis: comparison
Regression statistical
Dependent variable: corporate governance-related performance
Region (1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

(1) Africa 0.89 (0.90) 7.44*** (1.50) 9.85*** (0.80) 0.92 (0.78) 3.88*** (1.16) 5.42*** (0.76) 1.76* (0.99) 2.15** (1.05) 3.27*** (1.01)
(2) Asia-Pacific 0.89 (0.90) 6.55*** (1.40) 8.96*** (0.58) 1.81*** (0.56) 2.99*** (1.03) 4.53*** (0.53) 0.88 (0.82) 3.04*** (0.89) 2.38*** (0.84)
(3) Caribbean 7.44*** (1.50) 6.55*** (1.40) 2.41* (1.33) 8.36*** (1.33) 3.56** (1.58) 2.02 (1.31) 5.67*** (1.46) 9.59*** (1.49) 4.16*** (1.47)
(4) Eastern Asia 9.85*** (0.80) 8.96*** (0.58) 2.41* (1.33) 10.77*** (0.38) 5.97*** (0.94) 4.43*** (0.33) 8.08*** (0.71) 12.00*** (0.79) 6.58*** (0.73)
(5) Europe 0.92 (0.78) 1.81*** (0.56) 8.36*** (1.33) 10.77*** (0.38) 4.80*** (0.93) 6.34*** (0.29) 2.69*** (0.69) 1.23 (0.77) 4.19*** (0.72)
(6) Middle East 3.88*** (1.16) 2.99*** (1.03) 3.56** (1.58) 5.97*** (0.94) 4.80*** (0.93) 1.54* (0.91) 2.11* (1.10) 6.03*** (1.15) 0.60 (1.12)
(7) North America 5.42*** (0.76) 4.53*** (0.53) 2.02 (1.31) 4.43*** (0.33) 6.34*** (0.29) 1.54* (0.91) 3.66*** (0.67) 7.57*** (0.75) 2.15*** (0.69)
(8) South America 1.76* (0.99) 0.88 (0.82) 5.67*** (1.46) 8.08*** (0.71) 2.69*** (0.69) 2.11* (1.10) 3.66*** (0.67) 3.92*** (0.98) 1.51 (0.94)
(9) South Asia 2.15** (1.05) 3.04*** (0.89) 9.59*** (1.49) 12.00*** (0.79) 1.23 (0.77) 6.03*** (1.15) 7.57*** (0.75) 3.92*** (0.98) 5.43*** (1.00)
(10) Southeast Asia 3.27*** (1.01) 2.38*** (0.84) 4.16*** (1.47) 6.58*** (0.73) 4.19*** (0.72) 0.60 (1.12) 2.15*** (0.69) 1.51 (0.94) 5.43*** (1.00)
Constant 56.32*** (0.75) 55.44*** (0.50) 48.89*** (1.30) 46.47*** (0.29) 57.25*** (0.24) 52.45*** (0.89) 50.90*** (0.16) 54.56*** (0.65) 58.48*** (0.73) 53.05*** (0.68)
N 8,610 8,610 8,610 8,610 8,610 8,610 8,610 8,610 8,610 8,610
R2 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11
F-statistic 118.15 118.15 118.15 118.15 118.15 118.15 118.15 118.15 118.15 118.15

Notes: Robust standard errors in parentheses; * p 0.10; ** p 0.05; *** p 0.01

 corporate governance-related performance in Asia-Pacific is not different from that in Corporate
South America at any conventional level of significance. Models 3 and 7 collectively governance
indicate that the level of corporate governance-related performance in the Caribbean is
not statistically different from that in North America. Model 5 provides additional
information that the level of corporate governance-related performance in Europe is not
statistically different from the corporate governance-related performance in South Asia.
Model 6 indicates the levels of corporate governance-related performance of Middle East 1439
and Southeast Asia are the same. Finally, Models 8 and 10 further suggest that there is
Downloaded by Universitas Sebelas Maret, UPT PERPUSTAKAAN UNS At 06:06 09 February 2017 (PT)

no difference in the level of corporate governance-related performance between South

America and Southeast Asia.
Thus far, the results reveal a growing awareness and acceptance of corporate
governance standards and practices in a wide range of business sectors across
geographic regions. Nevertheless, the corporations located in different regions seem to
exhibit differential degrees of intensity in the corporate governance implementation. As
noted above, there has been growing academic attention paid to identifying the key
factors in determining these differences (Roe, 1994, 2003; La Porta et al., 1997, 1998, 1999,
2000, 2002; Bebchuk and Roe, 1999; Licht, 2001). Most often, these differences are
explained through a variation of the formal institutional conditions such as the legal
systems (La Porta et al., 1997, 1998, 1999, 2000, 2002) and political interventions (Roe,
1991, 1994, 2003).
Even though there has been an increasing scholarly effort to examine the impact of
informal institutional factors, particularly national culture on corporate governance, the
causal relationship between national culture and corporate governance has not been
existent (Matoussi and Jardak, 2012). This raises an interesting question of whether and
how national culture has a dominant influence on governance-related performance of
corporations. The next results address this question.

Result 3. National culture has an influence on determining a difference in the

governance-related performance of corporations
To examine the impact of national culture on corporate governance performance, the
OLS is applied in this study to infer the casual relationship between the national
culture and governance-related performance of corporations. The measures of
national culture are a countrys cultural scores on four cultural dimensions, namely,
power distance index (PDI), individualism (IDV), masculinity (MAS) and
uncertainty avoidance index (UAI), are derived from Hofstedes study (2001).

GOVi f(Culturei,k, X), (5)

where i k, the subscript k denotes each dimension of national culture, namely, PDI,
IDV, MAS and UAI. According to previous studies, the governance-related performance
seems to exhibit a linear functional form in all of the national cultural variables. Thus,
the regression function to be estimated can be explicitly written as:

GOVi 0 1PDIi 2IDVi 3MASi 4UAIi BxX i. (6)

The variable X denotes a vector set of control variables which might have an influence
on the governance-related performance of corporations, including leadership ethics,
economic risk rating, political risk rating, transparency reporting and law and order.
 MRR Finally, to verify the robustness of our findings, robust least squares (VCE) that
39,11 correct for the non-constant variance across observations and the censored normal
(Tobit) model that adjusts the estimated function for the non-negative dependent
variable are performed after obtaining the results from the OLS regression.
As shown in Table V, IDV has a significant positive effect on corporations
governance-related performance (p 0.01) across all specifications. Alternatively, MAS
1440 and UAI have significant negative impacts on corporations governance-related
performance (p 0.01) across all specifications. Likewise, PDI also has a significant
Downloaded by Universitas Sebelas Maret, UPT PERPUSTAKAAN UNS At 06:06 09 February 2017 (PT)

negative effect on corporations governance-related performance (p 0.05). The

estimates for the significance and direction of associations between national culture and
corporations governance-related performance in the OLS regression, VCE and Tobit
models are summarized in Table V.
The interpretations of the results in Table V are as follows.
Power distance-corporate governance. The corporations in countries with a high
power distance culture are likely to lean toward a low level of symmetrical
communication and information flow (Hofstede, 2001). Consequently, it results in less
diversity engagement in the board management of the corporations and less disclosure
of policies and procedures (high secrecy) to preserve power inequalities existing in those
societies (Gray, 1988; Perera, 1989; Baydoun and Willett, 1995; Radebaugh and Gray,
2002). Hence, the corporations located in countries that are characterized by a high
power distance culture are likely to exhibit a lower level in the governance-related
performance.
Individualism-corporate governance. The corporations based in a high individualistic
culture tend to enthusiastically promote and protect the interests of their shareholders
ahead of other stakeholders (Hampden-Turner and Trompenaars, 1997). The key
standards of good governance practices (i.e. independent board structure, information
disclosure and performance-based compensation) are considered as codes of conduct for
the corporations in individualistic countries. Furthermore, countries with a high score
on individualism tend to have a higher quality of shareholders and investors protection
law than collectivistic countries (Licht et al., 2005). As a result, the corporations in
individualistic countries are more likely to keep a tight rein on their corporate

Variable OLS VCE Robust Censored normal (TOBIT)

PDI 0.01** (0.004) 0.01** (0.005) 0.01** (0.004)

IDV 0.03*** (0.003) 0.03*** (0.003) 0.03*** (0.003)
MAS 0.04*** (0.003) 0.04*** (0.003) 0.04*** (0.003)
UAI 0.04*** (0.002) 0.04*** (0.002) 0.04*** (0.002)
Leadership ethics 0.54*** (0.004) 0.54*** (0.004) 0.54*** (0.004)
Econ_Risk 0.03* (0.02) 0.03* (0.02) 0.03* (0.02)
Political_Risk 0.06*** (0.01) 0.06*** (0.01) 0.06*** (0.01)
Trans_Reporting 0.41*** (0.004) 0.41*** (0.004) 0.41*** (0.004)
Table V. Law_Order 0.34*** (0.06) 0.34*** (0.06) 0.34*** (0.06)
Analysis of the _cons 2.91*** (0.60) 2.91*** (0.64) 2.87*** (0.60)
impact of national N 7,677 7,677 7,677
culture on corporate R2 0.91 0.91 N/A
governance
performance Notes: Robust standard errors in parentheses; * p 0.10; ** p 0.05; *** p 0.01
 governance regimes and strictly abide with applicable laws and good governance Corporate
standards. governance
Masculinity-corporate governance. Individuals in a masculine culture are intensely
oriented toward financial incentives and material rewards for success. Consequently,
the individuals in a masculine culture are more likely to behave with unethical behavior
for pursuing personal gains (Vitell and Festervand, 1987; Chang and Ding, 1995;
Blodgett et al., 2001; Yoo and Donthu, 2002; Ringov and Zollo, 2007; Scholtens and Dam, 1441
2007; Peng et al., 2012). Likewise, corporations in masculine countries tend to be more
Downloaded by Universitas Sebelas Maret, UPT PERPUSTAKAAN UNS At 06:06 09 February 2017 (PT)

attentive to maximizing profits and reducing costs. The corporate governance projects
and activities are perceived as the excessive expenses, resulting in a lack of interest in
corporate governance attributes among corporations in a high masculine culture.
Uncertainty avoidance-corporate governance. Uncertainty avoidance refers to the
extent to which individuals in a society accept uncertainty and ambiguity. Management
levels in a high uncertainty avoidance culture tend to avoid the uncertain situations that
put themselves at risk, such as fully disclosing information to the shareholders/
investors. Hence, the corporate governance standards in terms of information disclosure
and transparency reporting are more likely to be low among corporations in a high
uncertainty avoidance culture.
In sum, national culture has a significant effect on corporations governance-related
performance. In essence, corporations based in a high individualistic culture tend to
exhibit higher levels of governance-related performance, whereas those in high power
distance, more masculine and more uncertainty avoidance cultures are more likely to
exhibit lower levels of governance-related performance. On the basis of the findings of
this study, it is worth pointing out here that individualistic culture serves as the critical
determinant driving a higher level of governance-related performance of corporations.
As a result, the corporations in a high individualistic culture tend to have an excellent
business-based corporate governance system.

Result 4. There are significant positive relationships between governance-related

performance and the three other aspects of socially responsible corporate performance
community, employee and environment
To test the theoretical proposition regarding the interrelationship between corporate
governance and CSR (Kendall, 1999; OECD, 1999; Bhimani and Soonawalla, 2005;
Hancock, 2005; Ho, 2005; Jamali et al., 2008), the present study further explores the
degree to which corporate governance performance is related to the three dimensions of
corporate social performance community, employee and environment.
To measure a degree of the interdependency between corporate governance
performance and the three aspects of socially responsible corporate performance, the
Pearson product-moment correlation coefficient was computed. Overall, the findings
show that corporate governance performance is strongly related to the three other
aspects of socially responsible corporate performance. As seen in Table VI, the
corporate governance performance exhibits a positive relationship toward the
community-related CSR performance, as the correlation coefficient of 0.33 is positive
and statistically significant at less than 1 per cent level. The correlation coefficient of
0.44 between the corporate governance performance and employee-related CSR
performance is positive and statistically significant at 1 per cent level. Finally, the
correlation coefficient of 0.32 between corporate governance performance and
 MRR Governance Community Employee Environment
39,11
Governance 1.00
N 8,610
Community 0.33*** 1.00
N 8,323 8,535
1442 Employee 0.44*** 0.64*** 1.00
N 8,121 8,084 8,300
Downloaded by Universitas Sebelas Maret, UPT PERPUSTAKAAN UNS At 06:06 09 February 2017 (PT)

Environment 0.32*** 0.54*** 0.49*** 1.00

Table VI. N 8,045 8,000 7,647 8,277
Pearsons correlation
coefficients Notes: * p 0.10; ** p 0.05; *** p 0.01

environment-related CSR performance is also positive and statistically significant at 1

per cent level. Overall, the findings from Pearsons correlation coefficients strongly
suggest the positive relationships between corporate governance performance and all of
the other three aspects of socially responsible corporate performance. Further support
for Result 4 can be gained from the scatterplot summarizing the results in Figure 3.
In view of the findings presented in Table VI and Figure 3, one might expect that all
three dimensions of corporate social performance do in fact increase from the upsurge of
corporate governance performance, and vice versa. In other words, an increasing level of
the corporate social performance would uplift a level of the corporate governance
performance, whereas a rise of the corporate governance performance also would lead to
the increasing levels of corporate social performance regarding community, employee
and environment. The findings of this study are associated with the works of Hancock

Figure 3.
Scatterplots of the
corporate governance
performance and the
three socially
responsible corporate
performances
 (2005) and Elkington (2006), who suggest the good corporate governance system as a Corporate
basic building block for leveraging sustainable CSR. Moreover, the present study argues governance
that corporate governance and CSR are not distinguishable pieces of corporate strategy
but, rather, are closely interrelated and mutually supportive.
Recently, most of the academic literature on CSR has focused on investigating the
connection between CSR and corporate financial performance (CFP). Most often, the
findings of previous studies on this subject have collectively disclosed a positive relationship 1443
between CSR and CFP (Cochran and Wood, 1984; Griffin and Mahon, 1997; Posnikoff, 1997;
Downloaded by Universitas Sebelas Maret, UPT PERPUSTAKAAN UNS At 06:06 09 February 2017 (PT)

Waddock and Graves, 1997; Margolis and Walsh, 2003; Orlitzy et al., 2003; Allouche and
Laroche, 2005; Wu, 2006). As the positive correlations between corporate governance
performance and corporate social performance related to community, employee and
environment, it may be plausible that good corporate governance could be an indirect factor
that helps to foster the positive relationship between CSR and CFP. If this assumption is
accurate, it is worth pointing out here that promoting the adoption of good corporate
governance practices and standards along with enhancing CSR initiatives can contribute to
achieving substantial and sustainable improvements of CFP.

Concluding remarks
This study explores the current state of corporate governance as manifested by corporations
around the globe. The empirical findings reveal that despite being universally accepted as
the standards and principles of business practices, the corporate governance framework
receives far less attention among business corporations. The findings further suggest that
national culture is the critical factor determining a difference in the level of
governance-related performance of corporations. In particular, corporations based in
countries with a higher level of individualism are more likely to exhibit higher levels of
corporate governance performance, whereas corporations based in countries characterized
by high power distance, more masculine and more uncertainty avoidance cultures tend to
have lower levels of their corporate governance performance. In addition, this study
confirms a broad consensus around the theoretical perspective in corporate governance and
CSR synergies and interrelationships (Kendall, 1999; Bhimani and Soonawalla, 2005;
Hancock, 2005; Ho, 2005; Elkington, 2006; Jamali et al., 2008) by providing an empirical
illustration on the positive relationships between corporate governance performance and the
three other dimensions of corporate social performance.

Practical implications and future research

Reflecting further on the practical implications for business corporations, the findings of this
study regarding the impact of national culture on corporate governance can potentially draw
managers attention to applying modified corporate governance strategies according to their
national culture. Furthermore, policy makers who are responsible for inward foreign
investment can use the findings of this study to evaluate the investors potential governance
adoption. In addition, this study can alter business corporations to promote a strong
corporate governance regime in chorus to CSR strategies so as to leverage CSR development,
which ultimately results in higher levels of competitiveness and CFP.
In spite of a body of academic literature suggesting a positive relationship between
corporate governance and a firms financial performance (Gompers et al., 2003; Ho, 2005), it
would be interesting for future research to further explore the extent to which corporate
governance has a positive indirect impact on a firms financial performance. There is
 MRR potential to provide a more comprehensive analysis of the interaction effect of national
39,11 culture and geographic region on corporate governance performance of the corporations
embedded in that region through a statistical interaction method. In addition, it may be
interesting to integrate CFP into the analysis to identify a specific type/practice of the
corporate governance that could provide the highest return on the investment. Last, another
interesting avenue for future research would be to explore the ethical mechanisms that have
1444 been institutionalized to promote corporate governance practices.
Downloaded by Universitas Sebelas Maret, UPT PERPUSTAKAAN UNS At 06:06 09 February 2017 (PT)

References
Allouche, J. and Laroche, P. (2005), A meta-analytical investigation of the relationship between
corporate social and financial performance, Revue de Gestion des Resources Humaines,
Vol. 57, pp. 18-41.
Baydoun, N. and Willett, R. (1995), Cultural relevance of western accounting systems to
developing countries, Abacus, Vol. 31 No. 1, pp. 67-92.
Bebchuk, L. and Roe, M. (1999), A theory of path dependence in corporate ownership and
governance, Stanford Law Review, Vol. 52 No. 1, pp. 127-170.
Beck, T., Demirguc-Kunt, A. and Levine, R. (2003), Law, endowments, and finance, Journal of
Financial Economics, Vol. 70 No. 2, pp. 137-181.
Bhimani, A. and Soonawalla, K. (2005), From conformance to performance: the corporate
responsibilities continuum, Journal of Accounting and Public Policy, Vol. 24 No. 3,
pp. 165-174.
Blodgett, J.G., Lu, L.-C., Rose, G.M. and Vitell, S.J. (2001), Ethical sensitivity to stakeholder
interests: a cross-cultural comparison, Journal of the Academy of Marketing Science,
Vol. 29 No. 2, pp. 190-202.
Chang, J. and Ding, C.G. (1995), The influence of culture on industrial buying selection criteria in
Taiwan and Mainland China, Industrial Marketing Management, Vol. 24 No. 4,
pp. 277-284.
Cochran, P.L. and Wood, R.A. (1984), Corporate social responsibility and financial performance,
Academy of Management Journal, Vol. 27 No. 1, pp. 42-56.
Elkington, J. (2006), Governance for sustainability, Corporate Governance: An International
Review, Vol. 14 No. 6, pp. 522-529.
Gompers, P.A., Ishii, J.L. and Metrick, A. (2003), Corporate governance and equity prices, The
Quarterly Journal of Economics, Vol. 118 No. 1, pp. 107-155.
Gourevitch, P.A. (2003), The politics of corporate governance regulation, Yale Law Journal,
Vol. 112 No. 7, pp. 1829-1880.
Gray, S.J. (1988), Towards a theory of cultural influence on the development of accounting
systems internationally, Abacus, Vol. 24 No. 1, pp. 1-15.
Griffin, J.J. and Mahon, J.F. (1997), The corporate social performance and corporate financial
performance debate: twenty-five years of incomparable research, Business and Society,
Vol. 36 No. 1, pp. 5-31.
Grosser, K. and Moon, J. (2005), Gender mainstreaming and CSR: reporting workplace issues,
Journal of Business Ethics, Vol. 62 No. 4, pp. 327-340.
Hampden-Turner, C. and Trompenaars, F. (1997), Riding the Waves of Culture, McGraw-Hill, New
York, NY.
Hancock, J. (2005), Investing in Corporate Social Responsibility: A Guide to Best Practice, Business
Planning & the UKs Leading Companies, Kogan Page, London.
 Ho, C. (2005), Corporate governance and corporate competitiveness: an international analysis, Corporate
Corporate Governance: An International Review, Vol. 13 No. 2, pp. 211-253.
governance
Hofstede, G. (2001), Cultures Consequences: Comparing Values, Behaviors, Institutions and
Organizations Across Nations, Sage Publications, Thousand Oaks, CA.
Jamali, D., Safieddine, A.M. and Rabbath, M. (2008), Corporate governance and corporate social
responsibility synergies and interrelationships, Corporate Governance: An International
Review, Vol. 16 No. 5, pp. 443-459.
1445
Kendall, N. (1999), Good corporate governance, Accountants Digest, No. 40, p. 58.
Downloaded by Universitas Sebelas Maret, UPT PERPUSTAKAAN UNS At 06:06 09 February 2017 (PT)

La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R.W. (1997), Legal determinants of
external finance, Journal of Finance, Vol. 52 No. 3, pp. 1131-1150.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R.W. (1998), Law and finance, Journal
of Political Economy, Vol. 106 No. 6, pp. 1113-1155.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R.W. (1999), Corporate ownership
around the world, Journal of Finance, Vol. 54 No. 2, pp. 471-517.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R.W. (2000), Investor protection and
corporate governance, Journal of Financial Economics, Vol. 58 No. 1, pp. 3-28.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R.W. (2002), Investor protection and
corporate valuation, Journal of Finance, Vol. 57 No. 3, pp. 1147-1170.
Licht, A.N. (2001), The mother of all path dependencies: toward a cross-cultural theory of
corporate governance systems, Delaware Journal of Corporate Law, Vol. 26, pp. 147-209.
Licht, A.N., Goldschmidt, C. and Schwartz, S.H. (2005), Culture, law, and corporate governance,
International Review of Law and Economics, Vol. 25 No. 2, pp. 229-255.
Margolis, J.D. and Walsh, J.P. (2003), Misery loves companies: rethinking social initiatives by
business, Administrative Science Quarterly. Vol. 48 No. 2, pp. 268-305.
Matoussi, H. and Jardak, M. (2012), International corporate governance and finance: legal,
cultural and political explanations, The International Journal of Accounting, Vol. 47 No. 1,
pp. 1-43.
OECD (1999), Measuring and Reporting Intellectual Capital: Experiences, Issues, and Prospects,
OECD, Paris.
Orlitzy, M., Schmidt, F.L. and Rynes, S.L. (2003), Corporate social and financial performance: a
meta-analysis, Organization Studies, Vol. 24 No. 3, pp. 403-441.
Peng, Y.-S., Dashdeleg, A.-U. and Chih, H.L. (2012), Does national culture influence firms CSR
engagement: a cross country study, International Proceedings of Economics Development
& Research, Vol. 58 No. 9, pp. 40-44.
Perera, M.H.B. (1989), Accounting in developing countries: a case for localized uniformity,
British Accounting Review, Vol. 21 No. 2, pp. 141-158.
Perrini, F., Pogutz, S. and Tencati, A. (2006), Developing Corporate Social Responsibility: A
European Perspective, Edward Elgar Publishing, Cheltenham.
Posnikoff, J.F. (1997), Disinvestment from South Africa: they did well by doing good,
Contemporary Economic Policy, Vol. 15 No. 1, pp. 76-86.
Radebaugh, L.H. and Gray, S.J. (2002), International Accounting and Multinational Enterprises,
John Wiley & Sons, New York, NY.
Ringov, D. and Zollo, M. (2007), Corporate responsibility from a socio-institutional perspective:
the impact of national culture on corporate social performance, Corporate Governance,
Vol. 7 No. 4, pp. 476-485.
Roe, M.J. (1991), A political theory of American corporate Finance, Columbia Law Review, Vol. 91
No. 10, pp. 10-67.
 MRR Roe, M.J. (1994), Strong Managers Weak Owners: The Political Roots of American Corporate
Finance, Princeton University Press, Princeton, NJ.
39,11
Roe, M.J. (2003), Political Determinants of Corporate Governance: Political Context, Corporate
Impact, Oxford University Press, Oxford; New York, NY.
Rosam, I. and Peddle, R. (2004), Implementing Effective Corporate Social Responsibility and
Corporate Governance: A Guide, British Standards Institution, London.
1446 Scholtens, B. and Dam, L. (2007), Cultural values and international differences in business
ethics, Journal of Business Ethics, Vol. 75 No. 3, pp. 273-284.
Downloaded by Universitas Sebelas Maret, UPT PERPUSTAKAAN UNS At 06:06 09 February 2017 (PT)

Stulz, R.M. and Williamson, R. (2003), Culture, openness, and finance, Journal of Financial
Economics, Vol. 70 No. 3, pp. 313-349.
Van den Berghe, L. and Louche, C. (2005), The link between corporate governance and corporate
social responsibility in insurance, The Geneva Papers, Vol. 30 No. 3, pp. 425-442.
Vitell, S. and Festervand, T.A. (1987), Business ethics: conflicts, practices and beliefs of industrial
executives, Journal of Business Ethics, Vol. 6 No. 2, pp. 111-122.
Waddock, S.A. and Graves, S.B. (1997), The corporate social performance financial
performance link, Strategic Management Journal, Vol. 18 No. 4, pp. 303-319.
Wu, M.-L. (2006), Corporate social performance, corporate financial performance and firm size,
Journal of American Academy of Business, Cambridge, Vol. 8 No. 1, pp. 163-171.
Yoo, B. and Donthu, N. (2002), The effects of marketing education and individual cultural values
on marketing ethics of students, Journal of Marketing Education, Vol. 24 No. 2, pp. 92-103.

Further reading
CSRHub (2014), Corporate social responsibility ratings, available at: www.csrhub.com/
(accessed 1st July 2014).

About the authors

Dr Namporn Thanetsunthorn is an Assistant Professor of Business Administration at Defiance
College. Her research and teaching interests lie in the fields of business management strategy,
organizational behavior, human resources and organizational development, business ethics and
corporate social responsibility. Her work has been published in several scholarly journals, book
chapters and conference proceedings. Dr Thanetsunthorn recently won the Award for
Outstanding Paper on Ethical Issues in Consulting at the 75th Annual Meeting of the Academy of
Management (AOM). Namporn Thanetsunthorn is the corresponding author and can be contacted
at: namporn.th@gmail.com
Dr Rattaphon Wuthisatian is currently serving as an Assistant Professor of Business and
Economics at Southern Oregon University. His research and teaching interests include
macroeconomics, applied financial economics, behavioral economics/finance, corporate finance
and quantitative methods in business and economics. His research work has appeared in various
peer-reviewed journals, book chapters and conference proceedings. Dr Wuthisatian recently won
the best research paper award at the Annual Meeting of the Academy of Behavioral Finance and
Economics, Los Angeles CA, USA.

For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
Or contact us for further details: permissions@emeraldinsight.com