Informal institutions and corporate governance

This chapter illuminates the role of informal institutions in shaping corporate governance. The latter is regulated by formal rules and enforcement processes; however, unwritten rules, codes of conduct, beliefs and patterns of behavior create a rich and, to a certain extent, unexplored background against which corporate governance develops. By taking into consideration relevant research, we provide insights into how prescriptive informal rules and expectations (emanating from values deeply rooted in social, political and economic structures, religious processes and organizations) shape important aspects of corporate governance such as ownership, board size and composition and shareholder protection, as well as strategic decision-making processes. This chapter builds a theoretical construct to provide an in-depth understanding of the role of informal institutions and reviews empirical studies to bring together important findings and conclusions. Finally, it draws attention to implications for academics, managers, regulators and market participants, and suggests new paths for future research.