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Religion and Corporate Governance: Evidence from 32 Countries
Author(s) -
Kim Jaehyeon,
Daniel Shirley J.
Publication year - 2016
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12130
Subject(s) - corporate governance , accounting , principal–agent problem , business , agency cost , panel data , empirical research , hofstede's cultural dimensions theory , agency (philosophy) , protestantism , political science , economics , sociology , social science , law , finance , shareholder , philosophy , epistemology , econometrics
This study seeks to understand the effects of informal constraints, particularly religious denominations, on corporate governance. Using archival data from a panel sample of 32 countries—between 2006 and 2010—we find that a higher proportion of Protestantism is associated with stronger corporate governance after controlling for cultural, economic, legal, and institutional factors. This study provides empirical support for the socio‐cultural theory, which posits that socio‐cultural variables such as religion are associated with the level of agency costs (Charreaux, 2004, Corporate governance theories: From micro theories to national systems theories, Working Paper). The findings of this study contribute to the corporate governance, accounting, finance, and management literature by showing that social norms, especially religion, have a strong effect on corporate governance practices. Moreover, this study provides insights for policy makers who are interested in enhancing corporate governance, allowing them to strengthen formal constraints such as rule of law for countries where there is a low proportion of Protestants, in order to improve corporate governance.