National societal values and corporate governance

Purpose - The purpose of this paper is to examine the association between national societal values and corporate governance in emerging markets. Design/methodology/approach - The sample is comprised of 511 firm-year observations representing firms from 22 emerging markets. The authors regress sample firms’ corporate governance ratings, reported by Credit Lyonnais Securities Asia (CLSA), on national societal value scores (Hofstede, 1980 variables for primary analysis and Schwartz, 1994 variables for sensitivity tests) and firm-level and country-level control variables. Findings - The authors find that national societal values are associated with corporate governance in emerging markets. Corporate governance is strong in firms from individualistic societies, and weak in firms from uncertainty avoiding and masculine cultures. Research limitations/implications - The authors extend the stream of literature that has established the link between formal institutions and corporate governance. The authors also extend the literature that examines how societal values influence corporate practices in emerging markets. Practical implications - The results suggest that informal institutions, in addition to formal ones, shape corporate governance in emerging markets. Corporate stakeholders need to be aware of the different societal values of each market and develop specific strategic plans that best suit both formal and informal institutions. Originality/value - The findings suggest that national societal values need to be considered in cross-country research on corporate governance. The results should also be of interest to policy makers advocating for or against global governance standards.