National Culture, Corporate Governance Practices, and Firm Value

We examine why corporate governance varies widely across countries and across firms, and why such variation matters. Using a new database from Governance Metrics International on corporate governance practices across a large number of countries and firms for 2006-2011 and employing a hierarchical linear model specification, we find that the national cultural dimension of individualism is positively associated with, whereas the national cultural dimension of uncertainty avoidance is negatively associated with, firm-level corporate governance practices. Within countries, there is a positive association between firm-level corporate governance practices and firm value; however, across countries, the association is negative or zero.

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