Social Norms, Social Cohesion, and Corporate Governance
Article first published online: 2 NOV 2010
© 2010 Blackwell Publishing Ltd
Corporate Governance: An International Review
Volume 19, Issue 1, pages 41–60, January 2011
How to Cite
Boytsun, A., Deloof, M. and Matthyssens, P. (2011), Social Norms, Social Cohesion, and Corporate Governance. Corporate Governance: An International Review, 19: 41–60. doi: 10.1111/j.1467-8683.2010.00829.x
- Issue published online: 31 DEC 2010
- Article first published online: 2 NOV 2010
- Corporate Governance;
- Informal Rules;
- Social Norms;
- Social Cohesion
Manuscript Type: Empirical
Research Question/Issue: We study the relationship between informal rules (represented by social norms and social cohesion in a community) and corporate governance. A community is a large social unit characterized by a distinct set of informal rules. Specifically, three hypotheses are tested: (1) Communities with stronger social norms will have more open firm-level corporate governance; (2) More socially cohesive communities will have more open firm-level corporate governance; and (3) The relationship between social norms and corporate governance will be mediated by social cohesion.
Research Findings/Insights: Unlike previous studies, we use data from a single, culturally diverse country, Ukraine, in order to isolate the effect of informal rules. The country's provinces are used as proxies for communities. We develop our measures of social norms and social cohesion by performing a factor analysis on the measures commonly used in previous research (social capital, religiosity, total fertility, ethnic homogeneity, linguistic homogeneity, and homicide rate). All three hypotheses are supported, whether using composite or individual measures of social norms and cohesion. The mediation is partial, suggesting that the hypothesized effect of social norms on corporate governance may (1) partly come through cohesion; and (2) partly be direct. The results are highly significant and robust, and they hold very well when controlled for economic development, firm characteristics, and industry.
Theoretical/Academic Implications: We contribute to the large literature on institutional determinants of corporate governance by proposing that informal rules may have a substantial impact on firm-level corporate governance. We also identify specific sources of informal rules: social norms and cohesion. Testing our insights in other countries and in cross-country settings would help to further understand what rules matter for corporate governance and whether informal rules may substitute for formal rules. Another research opportunity, perhaps best exploited through case-based research, is the deeper enquiry into the very mechanism by which informal rules may affect firm-level corporate governance.
Practitioner/Policy Implications: Manipulating informal rules, such as norms and cohesion, is an unlikely option for corporate governance reform. If that is the case, the policy should consist in adjusting the governance system to fit them. As this fit will differ across communities and countries, international convergence of corporate governance appears unlikely.